How to Build Your Credit and Start Adulting
Ahhhh credit. This bad boy has a HUGE impact on your adult life and yet it's not a course taught in high school. Which is crazy because it's sooooooo important when it comes to making big financial steps in your future. And when you're young you start with absolutely no credit, and no idea how to build it. So to make sure you don't have to go through the same things I did, I'm going to walk you through everything I know about credit!
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What The Heck Is Credit?
To be honest I never even knew credit existed until I decided I wanted to move out of my parent's house on my own. And boy, am I glad I learned! Think of credit as your life resume. It's your way of showing companies that they can trust you to pay your bills on time and that you are a responsible person. Things like getting an apartment, a car loan, your own phone plan, a credit card, all require you to have credit. To make it easy, you can't do much of anything in the adult world without it.
Crazy right? And yet a lot of people (myself included) knew nothing about credit including the grading system AKA your credit score. A low score would be a 300, while a perfect score is an 850. The better your score, the more likely you will be approved for that new apartment or car loan.
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So How Do I Build Credit?
There are a couple different ways you can start building credit when you are chilling in the zero credit zone.
Pay Your Student Loans
Now I know most of us twenty-somethings out there have some kind of student loan debt to pay off. And as much as having lots of debt really sucks, it can actually help you!
Your loan payments appear on your credit reports to show whether or not you are paying your loan on time with the correct payment. As long as you're sticking to the payment plan and are on time with your bills, you will start to build credit!
Editor's note: If you have student loans and would like to learn how you could potentially lower your monthly payments and save thousands of dollars in interest, then use my exclusive link to complete a FREE 3-minute survey to compare your lowest interest rates. Or, click the image below to get started.
Get Something In Your Name
This is as simple as having a bill to pay. If your phone bill or car insurance are in your name, and you are paying on time every month, that will go towards building up good credit! Once you move out on your own and you have rent, water, and electric bills under your name as well, they can amp up your credit too!
Get a Credit Card
Don't freak out! I know there are some scary stories out there about credit cards and the debt people get into. But credit cards aren't all bad! They can actually be extremely helpful when it comes to building credit. And as long as you are using them responsibly you won't have any problems.
Now the funny thing about a credit card is you actually NEED credit to get one. Crazy right? How can I build credit if I need credit to begin with? Well, there's a way around that! I had pretty much zero credit to my name when I first decided to look into getting a credit card. My student loans had just started to kick in so there wasn't much to go off of credit score wise.
So my bank teller suggested I get a secured credit card which is a card most young people start off with to build some credit.
Unsecured vs. Secured
With an unsecured credit card, you are using the credit card company's (whoever provided the credit card, in this case it was my bank) money and repaying it back to them when your bill comes. On the other hand, with a secured card, you are using your money and at the end of the month you pay it back to yourself.
The purpose of going with an unsecured credit card is that the credit card company doesn't know if they can trust you as yet. They want to make sure you are going to pay your bills on time and use your credit card wisely. So instead of giving you their money, they do a test run using your own.
As confusing as that sounds you actually don't lose any of your own money. Let me explain some more with an example.
My unsecured credit card had a $300 monthly limit which means that when I signed up for the card, I deposited $300 of my own money onto the card to use every month. Once the company saw I could be trusted to use my card responsibly and pay my bills on time (I built my track record in just 3 months!) they upgraded me to an unsecured card and I was given my $300 deposit back in full!
The best part? No one will know you have a secured card. So if you are applying for an apartment and they go to pull your credit score, it won't scream "I'm young and can't be trusted yet!" It will just simply show your credit score like everyone else's.
I highly recommend talking to someone who has experience and knowledge of credit cards before deciding which company and card will be right for you.
Check Your Score
Make sure you check your credit score at least once a year to make sure you know how you're doing and that there are not any mistakes on your credit report. Mistakes can happen and they can have a negative effective on your score so it's always good to stay updated on what's going on.
It's super easy to do too! You can use Credit Sesame to get your free online credit report all while sitting in bed in your PJ's.
Build Your Credit Now!
I can't stress this enough, don't wait until right before you want something to start building credit. Start now! When it comes to something like getting an apartment, your credit score can make or break your chances. For many places, if your credit score isn't good enough you will either need a cosigner or have to pay an extra deposit or extra months rent in advance.
If you start building credit early, you can avoid all that! I didn't have someone available to cosign my lease, and I didn't want to waste money on an extra deposit either. So I started building credit early to ensure I could be approved for the apartment on my own. And sure enough, it worked! With my few credit card statements and student loan payment history, I was approved for my apartment!
Don't Let It Scare You
It can be scary to think that something as small as a few numbers can have this much of an impact on your life. But take a deep breath because I promise you it's not as hard as it may seem.
And since you'll be starting early, when it comes time to make big life purchases like a brand new car, your credit score will be more than ready :)
This post was brought to you by Sami from Broke Young And Scraping By, a millennial lifestyle and finance blog aimed at helping young adults learn the ropes of the adulting world while building success at a young age.
What are some of the ways that you have started adulting? I'd love to hear from you in the comments below.