Good credit can go a long way. It is a financial demonstration of your reliability. If you want to rent an apartment or buy a house, they will check your credit. If you are applying for a job, they might check your credit. If you apply for insurance, they will check your credit (and you might get a lower rate if they like what they see). What they’re really looking for is whether or not they can trust you.
You, oh-creditless-one, are a risk
When I first started driving, which wasn’t until I was 22, I had the hardest time getting car insurance because I had no driving history. Of course, I couldn’t have a driving history until I had car insurance. It’s a catch-22. Credit is the same way.
If you met a stranger on the street and they asked to borrow $10, but said they’d pay you back, would you give it to them? Maybe, if $10 isn’t that important to you, and you’d be ok with not getting it back. Otherwise, you’d probably just say no. The fact is, you don’t know this person! You have no history with them. You don’t know if they’re good on their word. For all you know, they’re just gonna take that $10, and you’ll never see them again. That’s how credit companies see you if you’ve never had a credit history. You’re just a liability to them.
So how DO I get credit?
Students in college are in luck. It turns out it’s really easy to get a credit card if you’re in college, and here’s why. When you go off to college, credit card companies assume you must have a loving family back home who will do anything they can to make sure that you stay on the right track. To rephrase, credit card companies prey on college students because they know that when you inevitably get yourself into deep debt on that credit card that came with a free slice of pizza and a t-shirt, Mommy and Daddy will bail you out because they don’t want you to start your life with terrible credit and in debt. Get it?
If you’re not in college but still in your early 20s, it can be extremely difficult to get a credit card. Here are some tricks that can help.
Don’t apply for too many cards all at once.
Your credit score is affected by a lot of different factors, and some people never think about them. One that can hurt you before you’re even out of the gate is applying for too many cards. Credit companies can see everything on those reports. If they see that you’ve applied for 30 cards and haven’t gotten anything, they might convince themselves that you’re a higher risk than you are.
Apply for a credit card from your bank.
If you have a good bank and you’ve been using them for a checking account for awhile, they probably offer some type of credit card. This tends to be a better option for 20-somethings out of college because you already have a relationship with them. They are more likely to approve you because they can see that you consistently keep a certain amount of money in the bank.
Ask a parent or guardian to co-sign on a credit card.
This is a good fallback option if the others fail. If you trust your parents and your parents trust you, they might be able to co-sign on a credit card for you. This will help you start to build credit, and the credit companies are more likely to approve you for the same reasons as the college students I mentioned above. Beware though, your parents may not like this idea, and you’d better have proven yourself very responsible with your money.
Build credit without a credit card.
Above I mentioned that your credit score is affected by a lot of different factors. This actually implies that there are other ways to build credit without a credit card. Any kind of debt (in an official capacity) will contribute to your credit history. This means that if my sister were to go out and buy that car, probably with an excessively large down payment, she might be able to get that loan and start building her credit. She could also have a responsible adult co-sign on the loan and they would then be responsible for the payment should she default. Again, if you haven’t shown yourself to be the most responsible person with your money, it might be hard to find an adult that will trust you to actually make your payments and probably won’t co-sign for you.
Hopefully this list helps you get started in the wonderful world of credit, but you also want to make sure you stay on the right track. Try to find cards that will offer you rewards like cash back, and avoid cards that have an annual fee. To build credit with little risk, use your card for small, everyday purchases. This will ensure that you will be able to pay it off in full each month. Trust me, compound interest is a bitch.
