Building a credit score when you’re young is not easy. You have very little financial history to go with, and are therefore too much of a risk for most credit services. It’s even more difficult if you made some mistakes in the past and now have to rebuild your credit score.
Either way, if you have fair credit (a FICO score of 600-679), there are ways to improve your score, including appropriate credit cards.
Here are 3 methods to build a good credit score, even if you have a limited credit history.
1. Use a credit card
Credit cards are one of the most surefire ways of building credit. Even if you have no credit history, you can take out a credit card without having to jump through hoops. If you have fair or average credit, there are credit cards that are perfect for your needs. They will give you good rates and a higher chances of approval to take your fair credit a step further.
It’s important to remember, however, that you’ll only improve your credit score if you use your credit card correctly. Overdue payments will worsen your score. Maxing out your credit card – even if you pay it back on time – is also not a good idea. It reflects bad money management. Try to keep your spend below 30% of your limit. Use a fair amount of that 30% though, so that you can show you’re responsible with what you use.
2. Get credit for your rent
If you’re paying rent, and you’re always on time, this is a good indication of your ability to manage credit. However, it won’t automatically make it onto your report. Your landlord may report you to the credit bureaus if you don’t pay, but if you’re diligent, your credit score will only stay the same.
There are companies like Rental Kharma and RentTrack that will put rent and similar payments on your credit report. This won’t always be a possibility, but be sure to find out.
Those who have a trusting relationship with their landlord, who sometimes allows them to pay late or underpay should skip this method. It will only reflect badly on you!
3. Use someone else’s credit card
I’m not advocating credit card fraud here. But there are ways to hop on someone else’s credit bandwagon. Becoming an authorized user, with a card of your own, on someone else’s account can improve your credit score.
Organizing an arrangement with a relative or close friend can be an excellent way to improve your credit score if you’re unable to get a credit card of your own. You will have to work the nitty-gritty out with the owner of the card – and in some cases this may be impossible – but it’s worth it if you’re able to find the right arrangement.
Make sure that authorized users of the credit card being used actually get reported to credit agencies before you make any plans.
