Financial Literacy WashU

Ways to build credit when you don't have a credit history:

• Credit cards
  • Secured Credit Cards*: Secured credit cards require an upfront security deposit to open. Your deposit will equal your credit limit. For example, a $300 security deposit would get you a $300 credit limit. These cards are easier to qualify for. Depending on the company, after a certain amount of time of responsible use (typically 6-months), you will receive your money back and get a credit limit increase. 
  • Unsecured Credit Cards*: If you don’t have the money to make a security deposit, consider an unsecured credit card.
  • Student Credit Cards: If you’re currently enrolled in school, you can apply for a student credit card. These cards typically have low credit limits, but they will help you build credit and they may even offer extra for earning good grades.
• Methods that don't involve credit cards
  • Become an authorized User*: If you're having trouble getting your own credit card, becoming an authorized user on someone else's account could help. A family member or friend with a good credit history
  • Apply for a Store Credit Card: these cards are easier to qualify for, and usually, come with store discounts. Disclaimer: with these cards still follow the 30% max utilization rate. 
  • Your student loans: is a form of credit and paying them off in a timely manner will help you build credit. 

* = check glossary for definition. 

The best way to build good credit history is knowing the dos and don'ts of credit. By educating yourself on how credit scores work, you save yourself a lot of headaches and mistakes. Lucky for you there is another tab that breaks down credit scores and how they are calculated. Check out the Understanding Credit Scores tab!

Now on to the advice:

1. Pay your bills on time: I can't stress this enough! The payment rate is a big part of your credit score, don't spend more than you can pay off. If you find yourself in a tight place, at least pay the minimum due. 
   • If you can afford to do it, put your accounts on auto-pay. This allows you to never miss payments, and you won't have to worry about forgetting a payment.
2. Don't apply for too many new lines credits at the same time: new lines lower your average credit age and applying for too many can be a sign of financial trouble. 
3. Keep your credit balances low: follow the 30% rule. Meaning, only use up to 30% of your credit limit. If your limit is $1000, the most you should use your card for is $300.
4. Monitor your credit: monitoring your credit lets you know when there is an error as soon as it occurs. Also, it never hurts to keep track of your habits. 
5. Never close old accounts: keep them open even if you rarely use them. Closing an old account shortens your average credit age and decreases the amount of available credit you have. 

Go to the Visualizing Your Credit Score tab for more credit monitoring websites.

* = check glossary for definition