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While there are thousands of people in this country sinking into student debt, there are still those that manage to escape college without the use of credit at all. While this is definitely a positive thing, it can have its downside. Unfortunately, not establishing credit during these years means that you need to start at the beginning so you can get car loans, credit cards and a mortgage in the future. Here’s an easy guide for beginners establishing credit for the first time.
First things first: open a bank account. While bank accounts don’t appear on your credit report, they’re often required to request credit cards and other loans. It’s also an easy way to verify income.
Next, apply for a credit card. Stick to credit cards with lower credit requirements to avoid a denial, which will lower your score. The best credit cards for beginners are gas credit cards and department store cards. Also, make sure the credit card you’re applying for reports to all the major credit bureaus, although most do. Remember that the whole point of getting the card is to build your credit; if you choose a card that doesn’t report your activity you’re doing nothing toward your goal. Another good place to get a beginner’s credit card is your bank or credit union.
This third step takes some time. Make charges on your credit cards, pay the balance in full and pay on time. After about six months of on-time payments to your card you can try applying for a more serious card, although that may lead you in to trouble if it’s used irresponsibly. If you find yourself suddenly with a credit limit of $2,000, remember to use it carefully and only charge what you can pay in full each month.
Another good step to take is to make a plan for yourself to help control spending with credit. Keep track of all your expenses, make a budget you can stick to and always adjust your spending so it never goes over your income.
Lastly, here’s some advice: if you find you aren’t able to get an approval for any of these credit cards mentioned, try a secured credit card. Secured cards require a deposit that’s linked to a savings account and is equal to the credit limit. These cards can help build credit just like any credit card but watch out for excessive fees. Also, if you find yourself flat-out denied for credit, ask why. The creditor may tell you that your income was too low or you didn’t have enough credit history; these reasons are important because they can help you acquire credit in the future. They can also alert you to potential errors on your credit report.