How to Build Good Credit as a Young Person

Building good credit starts banking relationships off right.
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When you’re young, building good credit might seem impossible. It’s a catch-22: you build credit by using it, but you can’t get the credit to use without first building it. Once your credit is built, credit agencies gather information into reports. They even score you. The higher your score, the better your reputation, and the more lenders will court you. Businesses, landlords and even employers tend to shun those with low scores and also avoid doing business with those lacking credit. That’s where the catch-22 kicks in. Luckily, there are ways to build good credit.

Step 1

Pay all bills on time. Some companies won’t report your stellar payment record to credit agencies, but will broadcast late payments or a failure to pay. Meanwhile, reports that credit agencies are beginning to collect information on rental, utility and other accounts. Even library fines could show up on your report, the site warns.

Step 2

Apply for a retail card from a retailer you regularly use. Getting a card from a gas station or department store is usually easier than obtaining a standard credit card. Even if you do qualify for a standard card, a retail card can improve your score more because successfully handling different kinds of accounts shows a broader pattern of financial responsibility.

Step 3

Apply for a standard credit card, or, if you don't qualify, apply for a secured credit card instead. Secured credit cards require you to deposit money into an account as collateral in case you default. Once you establish your credit-worthiness, you will be able to get an unsecured card.

Step 4

Charge a recurring and budgeted bill to your credit card. For instance, pay your monthly electric bill with the secured card, then use money you budgeted for utilities to pay off the charge. Use your gas card to buy gas. But charge only 10 to 30 percent of your available credit.

Step 5

Pay off your credit card balances every month before the bills are due. Paying off your balances not only improves your score, it helps you avoid interest charges. If you cannot pay the entire balance off, at least make sure to pay the minimum monthly payment.

Step 6

Get a free copy of your credit report from each of the three major credit bureaus. Check your reports for inaccuracies and fraudulent activity that could indicate identity theft.

Step 7

Correct inaccuracies in your report by contacting the credit bureau that listed the errors and the companies that provided the erroneous information in the first place. Be aggressive in protecting your report’s accuracy.

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