6 Ways for Young Professionals to Build Credit
Building credit as a young professional with no credit history can feel like a chicken or the egg scenario. You need to get approved for credit in order to build credit, but it’s difficult to get approved because you’ve never had credit before.
Thankfully, there are plenty of ways you can start building credit as a young professional – no prior credit history required. Here are a few options to consider.
Get a Credit Card
Getting a credit card is a fairly easy way to start building your credit – just be aware that you may not be able to get the credit card you want (the one with all the rewards and the low interest rate) right out of the gate.
If you’re under 21, you’ll have to prove you have independent income or assets which you can use to repay your credit card debt.
If you are old enough to get a credit card, it’s tough to get approved for the card of your dreams when you don’t have credit history. Instead, try one of the following types of credit cards to start building your credit:
Secured credit cards
A secured credit card requires that you put down a deposit, which helps the creditor feel more comfortable extending you credit. Often, your credit limit will be equal to or greater than the amount of your deposit. If you make payments on time, every time, your secured credit card may turn into an unsecured credit card and your deposit will be refunded to you.
Before choosing this option, check with the credit card company to ensure they report to credit bureaus – that’s key to building your credit history!
Store credit cards
According to the Consumer Financial Protection Bureau, store credit cards “tend to be easier to obtain and typically offer lower credit lines.”
If you don’t want to put a deposit down on a secured credit card, a store credit card may be a better option to build your credit. However, make sure you always pay your statement balance in full to avoid paying potentially high interest charges on purchases.
Student credit cards
Credit card companies know that college students need to start building their credit, and some offer cards designed to facilitate that goal. They may be willing to extend an unsecured credit card if your income or assets are high enough.
Get Added as an Authorized User
Another great way to start building credit is getting added as an authorized user on a credit card account that has a stellar payment history. “When you are added as an authorized user to an account with a clean payment history, your own credit may benefit in several ways,” writes Carrie Kirby at Wise Bread.
Typically, the main accountholder’s credit history will be added to your credit report once you become an authorized user, which can be a quick way to build a credit history. Double-check with the credit card company to see if this is how their card works because each credit card company might be different. Most importantly, you must be careful as to who you join forces with - if the main accountholder misses a payment, your own credit will suffer.
Get a Cosigner
If you need a loan but don’t have the credit history to get approved, your best bet may be finding someone willing to cosign the loan for you. The cosigner will be fully responsible for the debt, too, so it can be difficult to find a willing party. However, some friends and family members may be willing to cosign your loan even with this risk.
To get the best interest rates, you’ll want to make sure your cosigner has an excellent credit score. Once you get a loan with a cosigner, be sure to make every payment on time and in full to start building a stellar credit history and avoid negative marks on your cosigner’s credit history.
Apply for a Credit Builder Loan
“A short-term credit-building loan is another way to build positive credit history,” writes Tiffany Aliche at US News. Essentially, credit builder loans allow you to build credit in exchange for payment.
While the loans work differently depending on where you get them, credit builder loans typically use the proceeds from the loan to secure your loan, which means you won’t have access to the money you borrow until the loan is paid off. You’ll make payments, which include an interest portion, to the lender each month. Then, the lender reports the payments to a credit bureau, which enables you to build your credit.
Once the loan is paid off, you’ll have credit history to show for it - even if it did cost a few dollars in interest to make it happen. You’ll also gain access to the money you borrowed once the loan is paid off.
Use a Rent Reporting Service
Did you know you can build your credit just by paying rent? While very few landlords report rent payments to the credit bureaus, you can use a service like RentTrack to act as a middle-man.
Here’s how it works: You send your payment to the rent reporting service, they report your payments to credit bureaus, then they forward the rent to your landlord. There is usually a fee to use a rent reporting service, but if you have no credit history it can be an easy way to get started.
A federal student loan is a common way for young people to build credit. Most federal student loans do not require a credit check, so you can typically get one without any credit history. You’ll be required to use the proceeds of the loan for education costs. If you’d like, you can begin repaying the loan right away.
Of course, student loan debt is not something to be taken on lightly. While building credit can be a nice side effect, it’s not advisable to get a student loan for this sole purpose. As with all loans, consider your ability to repay it before you sign on the dotted line.
Start Building Your Credit Today
If you’re a young professional without a credit history, the sooner you start building it, the better. No matter which credit-building option you choose, the most important thing is to use credit wisely so that you don’t go from “no credit” to “bad credit.” Understand the key factors in building good credit and never take on credit that you don’t think you can pay back on time and in full. As you start building your credit history, monitoring your credit score will help you make sure you’re staying on track to strong credit health.