Starting to Use Credit: Where Do I Begin?
If you’re not already an established credit user, it can seem like an elite club the bouncer just won’t let you into. So many of life’s biggest purchases – like a home or a new car – take credit in your pocket to become a reality. But how can you jump the line and cross over into the credit user club? There are a few strategies that can help you ease your way without getting in over your head.
If you’re in college and just starting out on your own, or maybe you’ve recently emigrated, it’s important to start establishing your credit history as soon as you can. Since minors can’t apply for credit, and an overseas credit history doesn’t follow you to the U.S., building credit from scratch can be a challenge. Lenders and others might be worried when they don’t see a credit history for you. The good news is that there’s steps you can take you can take to get started establishing your credit. Like any good investment, the payoff won’t happen right away but the end result is well worth the effort.
How can you take the first steps on your credit journey? Here are a few solid ideas to get you going:
- Check your credit report first. Make sure that you look over your credit report before you apply for credit – confirm your personal information looks right, and that there’s no unauthorized activity appearing yet. If you’re a young person starting out, or a newcomer to this country, your report should be “clean” – with nothing on it. Make sure this is the case before you start applying for any credit.
- Open a checking account and obtain a secured credit card. Because these cards are backed by the money you’ve deposited with the bank, they’re easier to get than normal credit cards. Use the card for small purchases and pay off the balance each month. The on-time payments will show up on your credit report, and payment history is often an important factor in determining your credit scores. Once you’ve demonstrated your ability to use credit responsibly, you can ask the bank to increase your credit limit.
- Consider leasing a car rather than buying. This might seem backwards, but in general, payments are lower for vehicles that you lease versus buy. Plus, the money you’ll put down on the lease will show lenders that you’re able to save toward a goal. The lease – and your record of good payment – will appear on your credit report.
- Use credit wisely. When working to establish credit, keep in mind that your purpose in using credit for now is to build a positive credit history – not to purchase everything you dream about but can’t afford yet. Keep credit purchases manageable and sensible. For example, do use your credit card to buy the laptop you need for work – because credit cards offer consumer purchasing protections that cash doesn’t. But pay off your credit card balance with the cash you’ve already saved when the statement arrives.
Establishing good credit now can help you show potential lenders that you know how to use credit wisely when the times comes for you to mak a big purchase in the future. And having access to the credit you want when you need it most can put achieving your financial goals within reach.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc., an Experian company. © 2015 ConsumerInfo.com, Inc. All rights reserved.
