3 First Steps to Building Credit

Building credit can certainly be a challenge. Without a solid credit history, it is extremely difficult to get credit cards, car loans, and apartments in San Diego. It is virtually impossible to get a home loan without a good payment record. But, how are you supposed to show that you are credit worthy if one of the requirements to get credit is to already have credit? It doesn’t seem to make a lot of sense. Well, there are a few different ways to establish the credit necessary to obtain a new mortgage.

building credit

1) Apply for a Secured Credit Card*

Stop by any San Diego bank to fill out the application. These accounts are very easy to get because they are they are secured against cash you deposit. Unlike unsecured accounts that allow you to spend against a credit limit to be repaid at a later date, these secured cards only allow you to spend the amount you have deposited. Because the financial institution assumes no risk, they are usually happy to open these accounts for you. Keep in mind that they usually ask for an initial deposit around $200. By using the card a few times and paying the balance in full each month, you will not accrue interest. This will help to build your credit up to eventually obtain an unsecured credit card.

* Before you apply, make sure the financial institution will report to all three credit bureaus: Experian, Equifax, and TransUnion.

2) Apply to Become an “Authorized User” on a Family Member’s Credit Card

Of course, your family member must agree to add you to their account. Again, you need to make sure their credit card company will report your activity to the three major credit bureaus. After about six months of reporting, this account will begin to have an impact on your credit score.

3) Demonstrate Credit Worthiness

Once you do have unsecured credit card accounts, you want to make sure they are helping your credit rating rather than hurting it. The obvious first step is to pay your bills on time every month. But, there are a few other things you can do to use these accounts to your advantage. Always try to keep your credit card debt relatively low. One good rule of thumb is to keep each of your card balances under 30% of the credit limit. It is usually better to have three open account balances under 30% of their credit limit than to have one card ‘maxed out’ or over 90% of the limit. That being said, you don’t want to open up too many new accounts either. It is best to open a few accounts as soon as you qualify and keep them open for a long period of time. Try to find cards with no annual fees or low annual fees and keep them open as long as possible.