We received this question from a young woman who feels good about her budgeting and doesn’t have debt she needs to pay off, but she’s hoping to build her credit for future use.
Here is our response:
Dear Ramona,
In answer to your question, here are a few things you can do fairly easily to build positive credit:
- Open up a new credit card account (like Chase, Citibank or maybe a Gas Card) that has a low credit limit. Use the card a small amount each month and pay off the balance in full by the due date.
- After several months of using this system successfully, ask the card issuer to increase your credit limit – this helps your debt to credit ratio. That means you have access to credit that you aren’t using and is a good sign reflected in your credit score.
- Common Pitfalls: People do try this plan and end up building up their balances owed. It is best to be very disciplined and pay this balance off in full every single month. If you can’t, cut it up and pay it off and wait for another day to build positive credit.
- When you start paying your student loans as agreed your credit will improve because of the positive pay history you’ll be building.
- Some banks and credit unions offer a “Credit Builder” loan. This usually is a secured loan using money you have already saved. This can be a great option – but be sure and ask them if they will be reporting to the three major credit bureau reporting agencies. Otherwise, it isn’t really helping you and you should move on!
- Do you have someone who may be willing to co-sign a note for you? That can help build your credit. (just be sure to never do this for anyone else!! J)
These ideas can get you started in the right direction. Over time as you build more complex credit your score will grow.
As a side note, I recommend building your savings as well and being certain you are living on a balanced budget.
Thanks!
Cristy Cash
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