Your credit report determines how trustworthy you are in the eyes of lenders. Without a good credit score, you could be denied for personal loans, mortgages, vehicle financing and more. Even if you are approved, many lenders give unfavorable interest rates and terms to borrowers with lower credit scores.
The easiest way to start building credit is to apply for a credit card and make timely monthly payments. For first-time credit card users, here are a few things to consider when researching which credit card will work best for you:
- APR – The higher the APR, the more interest and fees you’ll have to pay on purchases when you don’t pay your bill in full each month. With a low credit score (or no credit score at all), you’re more likely to qualify for higher interest credit cards, but you can utilize 0% interest credit cards that offer an introductory period with no interest to pay off larger purchases. Just make sure to pay off the debt before the intro period ends.
- Secured credit cards – Secured cards require a deposit that acts as your line of credit. For example, if you put $250 down as the deposit, that will act as your credit limit on the card. This is a solid option for those truly starting from scratch with zero credit history. After a year of responsible spending and paying off your balance on time each month, many issuers will return the deposit.
- Authorized users – Sometimes, the best first step to building credit is to become an authorized user on a friend or family member’s account. If they have a good credit score and healthy spending habits, that will look good on your credit report. Just make sure that you are in agreement on how much you are allowed to spend each month and how you plan on paying them for those purchases.