You’re done with college and you’ve secured a job. Now you just need to pay your moving costs and buy some furniture. A credit card would certainly be a convenient way to make those purchases, but if you don’t have any credit history it can be tough to get a decent deal on a card.
So how can you go about establishing credit? A few ways exist to start the process.
Keep Your Accounts in Good Standing
If you have active bank accounts, make sure they’re not overdrawn. If you keep them in good standing, you show that you can handle the responsibility that comes with money. The status of your bank accounts will not go into your official credit score, but lenders are free to contact your bank to ask about whether you are accountable with money.
If you do have accounts in good standing, use that to your advantage by applying for a credit card at your current bank. If you have been responsible with your accounts and a good customer, the bank would know that first hand and perhaps be willing to extend you a line of credit.
Sign up for a Credit Card (Carefully)
You can get a credit card without much or any credit history, but it won’t necessarily be a good one. The issuer most likely to accept your application is a department store or other retailer.
Large retail stores such as Target and Best Buy offer credit cards that give customers discounts at the time of application. The catch is, the cards often come with high up-front interest rates that can damage your credit and be hard to pay off if you make bad decisions. If you take out a retail-based credit card and don’t make your payments, you’ll end up worse off than you were in the first place: You’ll have bad credit instead of no credit. Make sure to only make small and infrequent purchases using your credit card and be sure to pay off the balance on time every payment period.
Get Secured Credit
Secured credit is easy to get, but not necessarily the best way to build your credit history.
When you obtain a secured loan, you attach an asset (house, car, other property) to the account. If you fail to make payments, the lender can take away whatever property you’ve linked to the account.
Through your bank you can set aside some money from your account as a security on a credit card. If you fail to make your payments, the bank will take the funds you used as a security deposit.
No matter which option you choose, make sure to always pay off your balance in full and keep whatever accounts you have in good standing. It’s easy to fall into bad credit and hard to get out.
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