by Emily Hechler 
By the time you reach your thirties, you’ve probably been building credit for many years. Mortgages, several auto loans, a handful of credit cards, and other loans all contribute to your ability to build credit. Neglecting payments will negatively impact your credit score. Years of positive credit building is what made some of those loans even possible. How do you start to build credit from scratch?
When to Start Building Credit
Reaching a high credit score is a financial milestone that comes with many benefits. Your credit score can impact many aspects of your personal finances including which products you get approved for or what interest rates you get on loans. A great way to start building credit from scratch is to start as soon as possible.
The earlier you can start building your credit, the better. We recommend that you start at age 18. Since you can’t legally obtain debt before this age, which means that it’s impossible to have a credit score before this age.
At age 18, we recommend enrolling for a credit monitoring service. These services keep track of your credit score, and you can use this tool to make sure there are no mistakes or fraud in your report.
To build strong credit from a young age, avoid taking on more debt than you can pay for. This can come in a variety of ways. If you have student loans, be mindful of how much you acquire. Be careful not to overuse your credit card. Carefully evaluate every situation that may require you to go into debt.
Credit Tips for Young Adults
If you haven’t started building credit yet and you’re in your twenties, chances are, you’ve already taken steps in this direction without intentionally planning it. Many student loans are deferred, which means that you don’t have to make payments until after you graduate. Once you reach this milestone, you will start building credit by making these payments. If you didn’t go to college, graduated without student loans, or want to take more steps to plan for your financial future, here are some tips.
Use credit wisely. While credit cards are great tools, overusing them can create habits that are hard to break. By keeping your credit utilization low, your monthly payments are more manageable. Plus, you might be able to pay for your full balance at the end of each month and avoid interest fees. A great product for first-time credit card holders is our Low Rate Visa.
Don’t rush into decisions. Credit inquiries can decrease your credit score. As someone who is just starting to build credit, this can be dangerous. All lending products require a hard credit check. Only apply for products that you are serious about since it will lower your credit score. However, your credit score can be rebuilt by making your minimum monthly payments on time. Just remember to research your purchase or product first so you don’t face regret and have to repeat the process.
Grow your credit score. A good credit score can open many doors in the future. It takes time to build a good credit score, so starting while you’re young is ideal. You can grow your credit score by making your minimum monthly payments on time. This includes student loans, credit cards, auto loans, and more. Missing payments will damage your score and cost you money in late fees and higher interest rates.
Invest now. Many think that investing should wait until you earn a large income. A benefit of investing is that your savings will grow over time. Investing a little now can result in a stash of cash later. You can invest in a Certificate of Deposit, which allows you to choose from various terms, or an IRA account, which is a long-term savings plan. Both options require commitment but will help you financially in the long run.
Don’t spend everything you make. If investing isn’t a great option for you right now, you should still try to save some of your income. Too many people live paycheck to paycheck and fall into the trap of predatory payday loans. Budgeting tools can help you save for an emergency, vacation, car, or other situations. Following a budget becomes easier the more you do it. Plus, you’re taking steps to be financially responsible.
Steps for Beginners
Building credit is often easier said than done. Damaging your credit can be even easier. These practical tips can be easy to implement with tools from Alltru. Here are some ways beginners can start building their credit.
Eliminate your student loan debt. Paying off student loan balances can take years to complete. Since many lenders don’t require you to start paying toward your loan until after your graduation, this prolongs the amount of time you have this debt. Making the minimum monthly payment on time, every time, will help you build your credit. By paying more than the minimum, you can pay it off even faster.
Use a credit card. Credit cards are convenient ways to pay for your everyday or even large purchases. They can help in emergency situations. Since you don’t receive a bill until later, you can delay paying for an item at the time of purchase. We suggest that you use your card for a few payments each month that don’t max out your limit. That way, you can pay your balance in full each month and avoid paying for interest.
Become an authorized user on a different credit card. If you aren’t ready for the responsibility of your own credit card yet, consider becoming an authorized user on a loved one’s credit card. Each situation will be different between you and your co-credit card user. A good rule of thumb is to keep track of every purchase you make with the credit card and pay back the primary user on time each month so they can settle their balance. Before agreeing to this commitment, you must realize that late or less than the minimum payments will damage both your and the primary user’s credit scores.
Pay off a Credit Builder loan. A Credit Builder loan is an affordable solution to building credit. When you open your loan, all the principal from the monthly payments grows in a Savings account. At the end of your loan term, you get access to all your principal funds. If you make all your minimum payments on time, we’ll reimburse you for half of your interest fees. This loan is a relatively short-term commitment but can help you long-term in the future.
Conclusion
Like any good habit, the sooner you start, the sooner you can reap the benefits. Plus, it can become easier over time too. This is true for growing your credit score. Even though you save to start from scratch, at age 18, the credit union can grant you access to the tools you need to start building credit. Over the next few years, you can practice following a budget that allows for you to pay your minimum monthly payments on time to help grow your credit. If you aren’t ready for that large of a commitment yet, open a Credit Builder loan or become a co-user on a credit card. By following these tips, you’ll be on the path to financial success.
