Building credit may be the furthest thing from your mind, but if you don’t get ahead of the game, you could be scrambling to put things together at the last minute when you need some credit. It’s important to determine the best way to start building credit because credit history and credit scores have become a prominent piece of how banks and other money lenders work with the people that come to them for help.
Unless you’re wealthy enough to pay for everything in cash, there is a strong chance you will someday need to look for a loan or credit card. Without any credit background to prove you are trustworthy, you’ll have difficulty getting banks and lenders to work with you.
Still, it almost seems counterintuitive. You need credit to get credit, and nobody will work with you to get started. While things have gotten more challenging with banks doing more to protect themselves, there are still ways to gain lenders’ trust and get your credit moving.
Building banking relationships may be your best way to start building credit
You don’t need any credit to start a checking or savings account. Getting one (or both of these) is an excellent way to start building your financial reputation. While neither will help you establish credit, any lender will ask for banking information in their application.
By keeping these accounts in good standing, you can prove that you handle money responsibly and potentially set yourself up for some favorable treatment. This can be especially useful if the bank you decide to work with also offers its own credit cards. You are establishing a working relationship with that bank giving them knowledge of your money. Showing them that information can put you in position for easy access to a credit card that will build your actual credit history.
Getting a reasonable credit card may be your best way to start building credit
We’ve already established that credit can feel like a counterintuitive world. Indeed, one of the best ways to start building credit so you can get a credit card is to (drum roll) get a credit card.
Yes, that definitely sounds strange. The reality is you can still get a credit card, but the lender itself isn’t going to lend you money. What we’re talking about is a secured credit card. This type of card is where you first give the bank money for the amount of credit you want. If you want a card with a $1,000 line of credit, you first give them $1,000, and they will provide you with the card.
Essentially, you are loaning yourself money and allowing the bank to monitor your activity to prove you are a trustworthy person to lend to. By giving them the secured payment up front, you aren’t a lending risk to them. You will still make payments on the card as if you had given them no money up front.
The secured card gives you a chance to build credit and learn to use your credit card responsibly.
For those who have already have good credit, what was the best way to start building credit in your experience?