A credit score is a crucial factor on your financial journey. It's a three-digit number that shows lenders your capability of repaying a loan.
Although it takes time and patience to build, having a good credit score gives you access to many benefits, including better mortgage terms and rates. Unfortunately, many people don't really know where to begin when it comes to building credit scores. And most often, you need credit to build credit, which can be confusing and frustrating if you're just starting out.
So what can you do?
Method 1: Open a secured credit card.
A secured credit card is a great tool for those who are just starting with their credit journey. It's easier to get a secured card from the bank that you're already with.
To open a secured credit card, you have to provide your bank with a security deposit, which will then serve as your card's limit. For example, if you deposited $300, then your credit line is also $300.
Now let's say you've been using your secured credit card responsibly, paying your bills on time and keeping your credit utilization low. In that case, your bank will return your deposit after a few months and offer you an unsecured credit card.
Method 2: Be an authorized user.
If your family member or friend has a good credit score, you can ask to be an authorized user on their credit card.
Being an authorized user means you're piggybacking on their credit history and credit score. Once you have developed a credit score, you can then get your own credit account.
Now the important things here are trust and responsibility. The other person would trust you not to destroy their credit health by racking up debt on their account. You must reward their trust by managing the credit line responsibly and making payments on time for any purchases you make.
Method 3: Get credit for paying.
Did you know that you can get credit for paying utility bills, cell phone plans, or even streaming services? You can sign up for credit-building tools that pull your monthly bill payments into your credit profile. This is helpful if you want to build credit without opening a credit card. But just make sure that the tool you're using reports to the credit bureaus.