If you’ve spent time in the “real world,” you’ve probably had your credit looked into for one reason or another. Whether for a car loan or to qualify as the tenant on a new apartment, the reality is that if you’d like to take on additional financial responsibility, you’ll need a proven track record. As you take on responsibilities, typically in the form of credit card bills and recurring payment loans, your credit (and trustworthiness) builds, and you see corresponding increases in your credit score. If you take on credit and fail to follow the agreed-upon payment schedule, you will see that reflected negatively in your score.
We won’t get into the weeds with how specifically the different bureaus calculate your score (there are three bureaus, each with individual scores), but, as general knowledge, you should know that scores range from 300-850 with a higher score being better.
The credit reporting system was established to allow lenders and borrowers a platform of trust that can be built on and was created to work for the borrower, and not against them. The problem for many, however, is that when you don’t have any credit, but you need credit to qualify for loans or responsibilities which build confidence, then it is easy to be stuck at the bottom. Likewise, if you have a poor credit history and have fallen short on your financial responsibilities in the past, it is often difficult to rebuild that trust with lenders.
So, what steps can you take to build your credit from the ground up? Regardless of why your score is low, here are a few quick tips you can implement to gain some traction.
Find a Secured Credit Card
One thing you will find is that if you have bad or no credit, successfully getting approved for a credit card is nearly impossible. Unfortunately, using a credit card and then diligently paying it off is one of the fastest ways to build credit, which creates a bind for those at the bottom. A great strategy is to open up a secured credit card, which will be easier to get approved for as it is much lower risk than a traditional credit card. Secured cards work by tieing a checking account to the card and then having your monthly limit be decided based on the current balance of the account. This assures the lender that you can pay your bills and allows you to begin building a positive credit history.
Pay Your Student Loans
Student loans are prevalent among many young people, and neglecting to pay them can seriously ding your credit score. Start to pay these loans, however, and you will see it positively reflected in your score. There is no way out of student loans, even through bankruptcy, so it makes a lot of sense to prioritize the effort to pay them off. While I think it’s fairly indisputable that a world without student loans would make a lot of people happy, the reality is that they are a necessary evil for many young people who are looking to get ahead. Most people who carry student loans have a negative view towards their debt, and rightfully so, but by shifting this view to an opportunity to build credit it may reframe the situation in a way that makes the monthly bill more palatable.
Request Rent Reporting
Most credit bureaus don’t take positive rental payment history into your credit score because most leasing companies and landlords do not report it. A solid history of paying rent on time can be an asset to your credit; however, so, especially when you are first building credit, it is beneficial to have your landlord report your payments. Rent is one of the nearly universal bills we all have to pay, so you might as well get credit for it! Especially when you consider the consequences of not paying your rent is a damaging eviction on your credit which can make it almost impossible to rent in the future, you would be foolish not to ensure this substantial financial liability is helping you as much as it can. Most landlords will be understanding of your request, especially if you can do the leg work of providing the necessary paperwork to them, so don’t be afraid to ask!
Being stuck at the bottom of the credit ladder can be frustrating and put a damper on your financial plans. Luckily there are steps you can take, even if you haven’t been perfect in the past, that will help you move upwards and earn the financial freedom that comes with a high credit score.
Best of luck!