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Getting Started Getting Credit Thumbnail

Getting Started Getting Credit

Whether good, bad, or somewhere in between, when it comes to credit scores, it seems like every young adult starts off in a different place. That three-digit number is important — it can determine whether you can get a credit card, car loan, or even a mortgage. The score also affects the interest rate you may pay. As the old expression goes, there are few things more expensive than bad credit.

You can check your credit score for free by visiting annualcreditreport.com. Reviewing your credit report also can help you monitor your credit for identity theft.

It can be tough to establish credit without having a credit history. How do you get started? Here are a few ways.

Start with Your Existing Bank

Consider getting a credit card through your existing bank relationship. They may use your balance history and other factors to help you get approved.

Get a Secured Credit Card

Secured cards are designed for someone trying to build up a credit score. But it’s called “secured” for a good reason — you need to provide security to the credit card company by making an upfront deposit, which serves as collateral. Some providers will review your account after a set period, to see if you can transition to an unsecured card (with a return of your deposit).

Become an Authorized User

Being added as an authorized user to another person’s card can help establish and build credit. Card issuers will often report the full payment history of the card, including the names of the individual users, to the three main credit bureaus. But all parties involved need to be on the same page. You may need to reimburse the main cardholder for purchases (that’s why it’s called a “credit” card and not a “mom and dad will pay” card). Late or missed payments will be added to both parties’ credit reports.

Get a Co-Signer for Your Loan

Let’s say you wish to get an auto loan, but you have no credit history. Getting a parent or relative to co-sign, as primary borrower, may allow you to move forward. The primary and co-signer share equal responsibility for the loan, which will appear on both parties’ credit reports.

Get a Credit “Boost”

At least one of the major credit bureaus, Experian, offers a service called Experian Boost, which allows you to include your on-time utility and cell phone payments in your credit report. Make those payments on a timely basis — setting up auto pay helps!

Pay Your Student Loans

If you do need to borrow to pay for college, federal undergraduate loans for students do not require a credit check (though federal loans for parents and grad students do). Paying your student loans on time will help build and maintain a good credit score.

The best advice I can give once you have established credit — pay your credit card balance in full every single month. Don’t get a credit card to help make ends meet -- hold off until you are more financially stable. The best way to get financially stable — live within your means. It’s better to have no credit history than a poor one.

Are you looking for options for a new card? Pay attention to the rewards that they offer. For example, if you eat out frequently, consider a card that offers 3% cash back on dining. If you love to travel, a card that gives you miles or travel points is a great option.

Conner Grzenia, CFP®
Conner is a Senior Associate at Rappaport Reiches Capital Management. He is a CERTIFIED FINANCIAL PLANNER™ and has a Series 65 license. Conner provides support to the firm’s clients to ensure they receive the best possible service. Please connect with Conner below. He loves to talk about investing, financial planning and sports.

The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only. Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.