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You’ve probably heard the terms credit and credit score before, but do you know how these two things affect you and your financial life? To begin, credit is borrowed money that you can use to purchase goods or services that you must pay back in the future. A credit score is a three-digit number between 300 and 850 that is designed to reflect the likelihood you will pay your bills on time.  

Credit is used for many things such as loans, credit cards and sometimes even apartment leases. If you don’t have credit built yet or your credit score is low, it’s difficult to obtain these things. If you’re just starting out, it can be tricky to show lenders that you’re responsible and will repay your debt. So, how can you start building your credit? 

Open a secured credit card 

A secured credit card is a great option to build your credit if you’re just starting out. Secured credit cards are backed by a cash deposit in an account at a financial institution. The limit on this credit card will usually be the same amount as your deposit. Using the card instead of cash will help you gain a payment history that will be reported to the credit bureaus and help you build credit history. It’s essential to pay your credit card payment early or on time, so that your credit score goes up. Once your credit score improves, you’ll be able to apply for a more traditional credit card. 

If you’re a young adult just starting out, it might be helpful if your parent or other family member adds you as an authorized user on his or her credit card. Your family member’s payment history will be added to your credit score. As an authorized user, you don’t even need to use or possess the credit card to benefit from being an authorized user. 

If you choose to be an authorized user on someone else’s card to build credit, make sure they have a good credit history. If they make late payments or rack up a large debt, it can negatively impact your credit score, too. 

The name says it all – a credit-builder loan is a loan that helps you build credit. With a credit-builder loan, you’ll make fixed payments to the lender. Your payments will be recorded and shared with the credit bureaus.  At the end of the loan’s term, you’ll receive the amount you paid and you’ll have credit history. 

If you don’t have much credit but are still looking for a loan, like a car loan, it might be beneficial to have a co-signer on the loan. A co-signer is someone who is also on the loan with you and will be responsible for repayment. Asking a parent or family member with good credit to co-sign on a loan may be a good option to obtain the loan and gain credit. Be sure to pay your loan on time so you don’t harm the credit score of your co-signer. 

Building credit can take time. Once you’ve established credit, paying on time, borrowing only what you can afford, and checking your credit report for accuracy will ensure that your credit score continues to improve.