Credit score for beginners is a debatable topic. A credit score is an important financial scorecard. A good credit score helps a person apply for mortgages or loans at a better rate. Credit agencies consider the credit score of a customer to provide the APR rate for credit cards, loans, mortgages, and other credit lines. Credit scores are determined by the FICO score. For a new person in the USA or for a new adult, this is important. Additionally, building a responsible credit score is a crucial first step in their financial journey. They need to find a way to develop a good credit score.
Developing and maintaining a good credit score is a mindset as well. In order to, develop a mindset is the first step. For instance, spending money on a credit card is easy. On the other hand, developing a habit to pay credit card bills on time is tough. Keeping an eye on the credit score and credit history is also very important.
Herein we will delve into some of the ways, new adults or members can develop a credit score and credit history:
Open a Secured Credit Card to build credit score for beginners
The easiest way to build a credit history for a beginner is to open a secured credit card. Although, secured credit cards are good for rebuilding credit history. Alternatively, they can also be used for building credit history from scratch. Secured credit cards provide a credit up to the security deposit with the credit card company. For people migrating from other countries to the USA, the secured credit card may be the approach to building credit over time.
Card members need to be careful and pay all the dues on time for a credit card. This credit card is for building credit scores and should be used for the same. It should never be used for a stop-gap arrangement or rollover credit.
People residing in the USA, having a Social Security Number (SSN), and having a valid checking account can open a secured credit card with a bank. It’s always good to check with the issuing bank to know the exact requirement. To know more about secured credit cards read best-secured credit cards.
Opt for a Student Credit Card if you are a student
These credit cards are great for students who are over 16 years of age. These students are also developing a new credit history for themselves. They can opt to apply for a student credit card.
Student credit cards are specially designed for students with Zero Credit history. Thus, they require the cardholder to be enrolled in a student program in a college, university, or community college. Some student credit cards may also require a credit deposit or annual fee. It’s always good to look for credit cards with zero annual fees. Additionally, they may also offer rewards and perks for the students. Some of these include cashback or rewards on purchases.
In the end, these credit cards can help students develop a credit history. They will also learn to manage their finances better.
Read more to know about the best student credit card.
Consider opening a Retailer Credit Card
Retailer credit cards are fairly easy to get. They want you to spend money in their stores. Retailers issue two types of credit cards. Firstly, they issue in-store credit cards. This credit card works in specific retail outlets. The next one is credit cards with Visa or Mastercard. These work as normal credit cards. It’s always good to check with a retailer for their terms and conditions. They will help a customer build a credit history or credit score over time.
Read more to know about the best retailer credit cards.
Opening a Gas station credit cards
Gas station credit cards are also a good place to start for beginners. They are fairly easy to get for people with fair or bad credit and sometimes no credit. Gas station credit cards are good for small everyday purchases. They also help a customer instill a habit of financial prudence.
Read more on why to make all everyday purchases on a credit card and the best cards for the same.
Become a co-signee in a loan application
Customers can also co-sign for a loan application. Prime borrower takes the loan and can sign a co-signee for the same. A working spouse, parents, or a friend can be a prime borrower. Once the original borrower starts paying the loan back, the creditor will update the credit bureau for both borrowers. This could also be a way to build credit scores over time. As the loan will be paid over time, the credit score will also build over time.
Although, this facility should be used with caution. If the borrower doesn’t have enough money and defaults. The non-payment will also affect the co-borrower. It’s better to rely on someone within the family or a close friend whose financial situation one is aware of. Instead of helping in building a credit score, these may do harm in the long term. Thus, be careful before signing the loan as a co-borrower.
Use a credit-building service for improving credit score for beginners
Another great way to establish a credit history is to get a secured credit-building service. Examples of such services Kikoff, creditstrong, and Self. These credit-building companies provide customers with a revolving credit line against security. Security could be in the form of a deposit for beginners. They do charge fees for providing these services. They report to all three credit bureaus. Using these services can help customers build credit history over time.
When customers make scheduled payments they are reported to the credit bureaus until the amount they owe is paid back. The deposit is then released back to them after the account is closed. Once a customer has proven that they can pay back the loan, their FICO score may improve and credit card issuers can be quick to offer credit.
Report Rental and Utility Payments
Rental payments are also part of payments to a realtor or landlord on a property. These payments are some of the biggest expenses per month. There are services like Experian RentBureau which can help you build a credit history on paying rent on time. Similarly, there is another service Experian Boost which can help boost credit scores on utility payments. These include payments for internet or mobile bills. Experian boost also works with even streaming services like Netflix and Disney+. Experian Boost is a free service to customers.
Good practices for building credit score for beginners
- Always pay your credit card and loan EMIs on time. This is the number one criterion in any credit bureau’s score and it affects the credit score. A delay in payment by the customer is informed to the credit bureaus, and it may straightaway affect your score.
- Always keep the credit utilization ratio of your open credit like credit cards to a minimum. Ideally, the credit utilization ratio should not go beyond 30%. It means, that if you have 2 credit cards with $4,000 and $2,500 credit lines. The total credit limit would be $6,500. Always keep your overall spending combines on credit cards below $1,950.
- Keep a close eye on the credit report. Customers can request their credit report for free from AnnualCreditReport.com. They should monitor for any change not initiated by them.
- Credit score and history take time to built. A person should look at it from a long-term perspective. As a result, rushing into things might not help. Do not fall into trap of some companies which give shortcuts to improve or build credit score.