How To Build Credit | Quicken Loans
How to build credit with a credit card
The most popular option to start building credit is the credit card. Whether it’s a secure or unsecured card, the proper use of a credit card can be a great way to establish payment history and demonstrate your ability to manage your finances.
Apply for your first credit card
When banks and financial institutions give credit cards to consumers, they take a certain level of risk that the card owner is unwilling or unable to pay off their debt. This risk is higher when consumers do not have an established credit history, which means that it will most likely be difficult for those without credit to be approved for unsecured credit cards. that is, traditional cards whose debt is not backed by collateral.
This is where secured credit cards come in. A secure card works the same as traditional cards but requires the user to make a cash deposit when opening the card. This cash deposit is directly equivalent to the credit limit. For example, let’s say you deposit $ 500 when purchasing a secured credit card. The bank or financial institution keeps this money, and your credit limit is now $ 500, which you can slowly use and make payments. This minimizes the risk for your bank, because if you stop paying your credit card bill, they will take what you owe from your initial deposit. This security is what makes it easier for people with low credit to get approval.
While secured cards can seem overwhelming, they are a great way to start building credit as they allow you to make monthly payments which will steadily increase your credit score over time. When possible, it is ideal to pay off the card balance in full each month. If you can’t pay them off in full each month, at least make sure you make the minimum payment on time, as missed or late payments will cause your credit score to drop. Therefore, it is crucial to make sure that your card is used correctly and that no mistakes are made.
Become an authorized user on someone else’s credit card
If you’re having trouble getting your own credit card, becoming an authorized user on someone else’s may be a better option. This happens when someone you know – usually a family member – adds your name to their existing account. This gives you the ability to make purchases on the card without being responsible for payments.
But that’s only a good idea if you can trust the cardholder to make their payments on time. Why? When the primary card user pays their bill each month, that payment will also be reflected on your credit report, increasing your score. On the other hand, this means that if the cardholder misses payments or makes them late, it could end up hurting your credit rather than helping them.
Don’t miss any payments
Lenders want to know that you are able to make timely payments, so the importance of not missing payments cannot be understated when building up credit. Missing payments will negatively impact your score, so when shopping with a credit card you should always know exactly when and how you can make your next payment.