[ad_1] The post How to Build Your Credit appeared first on Millennial Money. Good credit isn’t something you can generate overnight. Building a stellar credit report is a process that takes time and effort on the borrower’s part. That said, life gets easier when you have a good credit history. You’re more likely to be approved for a mortgage or car loan than someone with average credit, for example. Credit scoring is based on credit card utilization rates, total credit, payment history, number and type of accounts, and length of credit history. This post explains what you can do to build your credit score and why it’s so important for your personal finances. A Step-By-Step Guide to Building Credit Open a bank account Earn a legitimate income Start paying down student debt Shop for a great credit card Pay your monthly balances Open new credit cards Increase your credit limit Diversify your credit Keep up with credit management 1. Open a bank account Your credit journey starts the moment you open a bank account in your name. This can be either a checking account, savings account, or money market account. For most people, this starts during your teenage years when you get your first part-time job. This may seem like a small step, but it’s actually important because it establishes you in the banking system. Even if you have little to no money rolling in, a creditor is going to look at this as a determining factor when deciding whether to give you a credit card. You have to start somewhere. And your journey begins with making a decision to put your money in the bank where it’s secure and able to generate interest. Learn More: Best Banks of 2021 Can you get a credit card in high school? You have to be at least 18 years old to open a credit card in your name. However, you can request a cosigner (e.g., a family member or guardian) to help you get one and start building credit. You may also be able to get a cardholder to issue a card in your name on their account. Based on your age and limited income, you probably won’t get a large line of credit at first—maybe just a few hundred or a few thousand dollars. If you’re in high school, you might also want to look into a secured credit card. Essentially, you pay the bank a sum of money (almost like a security deposit of sorts), and they give you a credit card to draw against those funds. It’s up to you to replenish those funds and pay off what you borrow each month. While you’re essentially using a credit card against your own money, this is a great way to demonstrate a steady payment history, which should make it easier to get an unsecured credit card (i.e., a “normal” credit card) later. Learn More: Best Credit Cards to Build Credit Best Credit Card for College Students 2. Earn a legitimate income The first big step in your credit journey is to start bringing in a livable wage and get to the point where you’re at least making an entry-level salary. You don’t need to make a ton of money or even work full-time to get a card with a decent credit line. You can get a credit card as an independent contractor or even with a part-time job. There are also a variety of credit cards available for college students with very low or even 0% APR. Learn More: Best 0% APR Credit Cards Is it a good idea for a young person to have their own credit card? It largely depends on the individual. Opening a credit card requires knowledge of how the credit system works and the discipline to stick to a budget and avoid overspending. If you open a credit card to pay for everyday items (e.g., food and your phone bill), collect rewards, and build your credit, it can be a great thing. If you use it to pay bar tabs and attend concerts without a job, you could wreck your financial future. Be smart when opening credit cards and use them as tools. Always remember that what you spend, you’re going to have to pay back. And if you don’t pay your credit card balances in full each month, interest will accrue. TIP: Some credit card issuers charge an annual fee, so be sure to read the fine print before opening an account. 3. Start paying down student debt Most college students attend school for a few years and graduate with some form of student loan debt to pay off. Instead of looking at this as a negative thing, consider it an opportunity to build credit and grow your credit history. Every time you make a payment, you’ll be one step closer to financial freedom. Credit bureaus will take note of the fact that you make payments on time. As you pay down your student loans, keep in mind there are no prepayment penalties on federal loans. This isn’t the case with personal loans, which often charge penalties for early repayment. As such, you can double down on student loan payments to pay off your loans and get out of debt faster. The faster you pay down your loans, the less interest you’ll have to pay. Learn More: How to Manage Student Loan Debt Student Loan Payment Calculator Federal vs. Private Student Loans 4. Shop for a great credit card Once you’re on your own and bringing in a livable income, it’s time to move on from whatever introductory credit card you’re using. Instead of shutting down your card, pay off the balance in its entirety and put a lock on the account to prevent any unauthorized transactions. Keep the credit card open so you can benefit from having more available credit, more accounts open, and longer credit history. For example, you may have a card with a $500 introductory credit line. That total
