Building credit and maintaining a good credit history are key steps towards building your financial future. At first, credit may seem frustrating — you can't get credit because you’ve never had credit. But there are actions you can take to start establishing a strong credit history.
Why you should establish credit
If you've always paid with cash or checks to make purchases and haven't used credit, it's a good idea to start. And if you’ve had credit problems in the past, it’s important to re-establish your credit history for a few key reasons:
- You may need good credit for such routine matters, such as having utilities connected to your home.
- Good credit is important to secure financing when buying furniture, a computer, a car, or even a new home.
- Employers may check the credit rating of prospective employees.
- Renting an apartment may be easier, as a good credit rating tells landlords that you are a person who's more likely to pay the rent on time each month.
- If you need a loan, banks may look more favorably upon you if you have a good credit history.
How a credit card can help
A credit card may be a good way to start building credit. You can use your credit card to make purchases, and they are very convenient. One way to start a credit history is to have one or two department store or gas station cards. They allow you to:
- Buy online or over the phone where cash may not be an option
- Make travel reservations, purchase airline tickets, and rent cars. Car rental companies may require a hold or deposit if you do not use a credit card.
- Shop more safely by not carrying a lot of cash
- Budget larger purchases by paying in installments
- Access funds for emergency needs
Ways to manage your credit history
Once you start using credit, it’s essential to manage it properly. So use your credit card to make purchases, but don’t go over your credit limit or let your balance owed get too high to manage. Pay at least the minimum payment due each month, or more if you can, and make sure you pay on time. The best way to reduce the interest owed on a credit card is to pay off the balance as quickly as possible. Otherwise, it may take many years to pay off even a small credit card balance if you only make minimum payments. If you follow these tips, you may build a strong credit history that will help you meet your financial goals.
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FAQs
One especially effective way to build credit is to open your own credit card account. Responsible credit card use, such as making timely payments and keeping balances low, can help you establish a positive credit history. If you have no credit history or poor credit, you may need to explore secured credit cards.
What is the fastest way to start building credit? ›
One especially effective way to build credit is to open your own credit card account. Responsible credit card use, such as making timely payments and keeping balances low, can help you establish a positive credit history. If you have no credit history or poor credit, you may need to explore secured credit cards.
How does a beginner build credit? ›
How to build credit for beginners
- Apply for a secured credit card.
- Become an authorized user on a credit card whose owner has a good credit score.
- Get a store credit card with a small limit.
- Find someone who will be a co-signer with you on a regular credit card.
How To Build a Credit History
- Apply for a Secured Credit Card.
- Become an Authorized User.
- Find a Co-Signer.
- Use Store Credit Cards.
- Finance With Interest-Free Offers.
- Apply for a Credit-Builder Loan.
- Get Credit for Your Monthly Bills.
How to Improve Your Credit Score
- Review Your Credit Reports. The best way to identify which steps are most important for you is to read through your credit reports. ...
- Pay Every Bill on Time. ...
- Maintain a Low Credit Utilization Rate. ...
- Avoid Unnecessary Credit Applications. ...
- Monitor Your Credit Regularly.
Here are 10 ways to increase your credit score by 100 points - most often this can be done within 45 days.
- Check your credit report. ...
- Pay your bills on time. ...
- Pay off any collections. ...
- Get caught up on past-due bills. ...
- Keep balances low on your credit cards. ...
- Pay off debt rather than continually transferring it.
Here are steps you can take that can have a positive credit score impact more quickly.
- Understand What Factors Affect Your Credit Score. ...
- Pay Off Credit Card Debt. ...
- Become an Authorized User. ...
- Get Credit for On-Time Bill Payments. ...
- Dispute Credit Report Inaccuracies.
At-A-Glance. Having good credit means having a good credit history. History isn't instant. If you haven't used credit before, it usually takes at least six months to generate a credit score – and longer to earn a good or excellent score.
What is a good credit score for a beginner? ›
You would need to score between 670 and 739 to have a good credit score. If the lender is checking your VantageScore with TransUnion, you need to rate between 661 and 780. Unfortunately, there is no way to predict which credit scoring model your lender will see.
What is a good starting credit amount? ›
Many starter credit cards have credit limit ranges between $200 and $1,000. In that case, you could consider a limit of $500 or more to be a fairly good starting limit.
The Discover it® Secured Credit Card is our top pick for easiest credit card to get because it's geared toward those with limited / poor credit.
How to rebuild credit fast? ›
9 ways to help rebuild credit
- Review your credit reports. ...
- Pay your bills on time. ...
- Catch up on overdue bills. ...
- Become an authorized user. ...
- Consider a secured credit card. ...
- Keep some of your credit available. ...
- Only apply for credit you need. ...
- Avoid closing old accounts.
The Bank of America® Travel Rewards Secured Credit Card is the best credit card with a $5,000 limit for bad credit. You can get a $5,000 credit limit with the Bank of America Travel Secured Card by placing a refundable security deposit of $5,000. The card also offers 1.5 point per $1 spent and has a $0 annual fee.
Is 650 a good credit score? ›
A 650 credit score is generally considered “fair.” A score in this range may limit you from certain financial opportunities. Payment history, monitoring your credit and lowering your credit utilization ratio can be helpful ways to improve this score over time.
What credit score is needed to buy a car? ›
Still, you typically need a good credit score of 661 or higher to qualify for an auto loan. About 69% of retail vehicle financing is for borrowers with credit scores of 661 or higher, according to Experian. Meanwhile, low-credit borrowers with scores of 600 or lower accounted for only 14% of auto loans.
What credit score do you need to buy a house? ›
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).
How long does it take to build credit from 500 to 700? ›
The time it takes to raise your credit score from 500 to 700 can vary widely depending on your individual financial situation. On average, it may take anywhere from 12 to 24 months of responsible credit management, including timely payments and reducing debt, to see a significant improvement in your credit score.
What brings your credit score up the fastest? ›
The fastest way to get a credit score boost is to lower the amount of revolving debt (which is generally credit cards) you're carrying. The percentage of credit you use against the amount of credit you have available is called your credit utilization rate.
How to get a 720 credit score in 6 months? ›
How to Get a 700 Credit Score
- Pay on Time, Every Time. Your payment history is the most important factor in determining your credit score. ...
- Pay Down Credit Card Balances. ...
- Avoid Unnecessary Debt. ...
- Dispute Inaccurate Credit Report Information. ...
- Avoid Closing Old Credit Cards.
Why you should establish credit