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How to Build Your Child’s Credit Score When They Don’t Have One Yet

From the 2007 Housing Crisis, 2008 Stock Market Crash, and now the student debt crisis there is no surprise parents nationwide are looking to educate and protect their children on finances. Many people during these national events lacked basic financial know-how and self-discipline. Gen-Xers and millennials, starting to have children of their own, worry that a new generation could be seduced by the allure of instant gratification and the digital disconnect between earning and spending money. What as a parent can you do for a young child to teach them finances and help them learn the basics? Here are some basic tips to help your children build healthy credit and learn to use it responsibly.

 

Start With Basic Financial Life Lessons

Whether your child is 2 or 22, financial education is the key to building good credit and financial independence. Erin Lowry, business blogger and author of Broke Millennial: Stop Scraping By and Get Your Financial Life Together, explained in a recent podcast that her parents taught her about delayed gratification early in life. “I was really encouraged from a very young age to start making money, especially if I wanted something,” Lowry said.

 

Saving for discretionary purchases is a lesson many young children can miss. A growing number of young adults also don’t have realistic expectations of their future earning power. Lowry grew up in a different reality. She explains that her first successful enterprise was at age 7, selling doughnuts at a family garage sale. Before she could feel too excited about her earnings, her father adjusted the amount she made by taking out the cost of the doughnuts and wages for her sister. He explained that the money left was her profit. “He actually took the money,” she remembers. “That is something that has stuck with me forever.”

 

It’s never too late to teach lessons like these. Resources for financial education are abundant in print and online, and parents can refer adult children to Lowry’s book and her blog, brokemillennial.com. For younger children, check out this post by Dave Baldwin, “The Five Best Apps for Teaching Kids How to Manage Their Money.”

 

Three Tips for Establishing Good Credit for Your Children

Parents with good credit and a clear vision of their children’s financial future can take these three actions to ensure a sound credit score for children reaching adulthood.

 

TIP 1: Make your child an authorized credit card user.

There is no minimum age to most credit cards, so you can add your child as an authorized user as early as you like. The best part is you do not have to give the child access to the card, just keep it in a safe place. It’s imperative that you use the credit card wisely and are able to pay the minimum monthly balance on the card. If you are unable to make payments on the card that could negatively affect your child’s credit history too. Try to only use the card for reoccurring balances like gas or food shopping.

 

When your child comes of age to have their first credit card in adulthood, they will benefit from your history of timely payments and reasonable use of credit. It will also benefit them if they need a loan to attend college and you as a parent may not need to be a cosigner.

 

TIP 2: Add a FREE credit freeze to your child’s credit report until they reach age 18.

Contact each of the three reporting agencies, Equifax, Experian, and TransUnion, to request a freeze in your child’s name. In some states, the freeze may need to be renewed every seven years. A credit freeze is fairly simple to implement and will protect your child from identity theft, which in turn will protect their credit history and credit score. You can also lift credit freezes when your child is ready to apply for credit.

 

It may seem like an extreme to put a credit freeze on your two months old credit but it will only protect them in the long run. Identity theft to children is an unfortunate reality in the United States. According to CNBC, more than 1 million minors were victims of identity theft or fraud in 2017. What may be even more surprising is that data breaches are just as much a problem for minors as for adults, if not more. According to CNBC, only 19% of adults were fraud victims compared to a staggering 39% of minors due to data breaches. This can happen to your child, but it can be prevented. You have the power to protect your children from falling victim to fraud. Not to mention a credit freeze is free thanks to recent laws passed by the federal government, so it won’t even cost you or your family a dime.

 

To learn more about protecting your child’s credit and preventing identity theft, visit the Federal Trade Commission’s Consumer Information site.

 

TIP 3: Set up a secure credit card account for your child to use.

A secure credit card is similar to an unsecured or the “normal” type of credit card. The only major difference is that a deposit is used to open a secured credit card account. The amount of secured credit card deposit is usually the credit limit of that secured credit card. Now, as long as all payments are made on time and in full at the end of the designated period you’ll receive your deposit back. Additionally, that fact that all payments were made on time and in full means that you should see that reflected in your credit report and you may even see that reflected in your credit score. If your child fails to make on-time payments or fails to pay the full amount of the card this could hurt your child’s credit instead of helping it.

 

If you choose to give your teenager a secured credit card you should be certain that you discuss the responsibilities of card with them. Make sure your child is committed to paying on time, staying within the credit limit, and using the card for only appropriate expenses you have discussed in advance. This is a great responsibility to provide a teenager because it really gives them the ability to start developing good financial habits. Whether that is putting an alert in their cell phone when the payment is due or if that is handwriting it on a calendar. Additionally, your child will have the opportunity to really learn to budget and live within their means. These are fundamental finance lessons and habits that will help to lay the groundwork of what could be a very financially responsible young person.

 

Financial Outlook

 

Regardless of what ways you choose to teach your child about credit or build their credit, know that your outlook on finances can easily become your child’s. If you find yourself scared of money, it’s likely your child will too. So often children learn relationships based on what they see their parents doing, so be sure that you’re laying the right framework for them to be successful. It doesn’t have to be an overly complex and if you aren’t sure that what you are teaching them is correct try looking locally for classes or programs. You should be able to find some financial literacy courses either online or within your local community. These can really help your child to familiarize themselves with common financial terms and create good financial habits. Good financial habits include how to save money, charitable giving, and even what taxes are.  No one knows your child better than you and no one wants them to succeed more than you, so be sure to give them the right tools and resources to do so.

 

Ask These 10 Questions When Hiring a Financial Advisor

 

 

NOTICE: Third Party Web Sites
Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.

How to Build Credit While in College

As a child, it’s not uncommon to think that there are monsters hiding under your bed or maybe in your closet. You never actually think it through as to what really could be hiding but it’s something scary. Trust me, you didn’t want to ever have to come face-to-face with it. Thus, my reasoning for staying in bed every night and never moving. Oh, and of course hiding my arms under the blankets. You know you did it too! Well, at twenty-eight I think I’ve finally met those monsters.  It was my credit!

Throughout my life, I was terrified of credit. I, like many others, was taught credit cards lead to lifelong debt and it could ruin my life. Not only that but any minor change like closing a credit card account affected my credit score – SCARY! Credit, like most new things in life can be intimidating or maybe even scary, but we have to start somewhere.

What most people, myself included, don’t understand about credit is that it can be a great thing when used responsibly. A good credit score can help with getting a house or buying a car. I now understand that credit is not a scary thing. Credit is only something you need to be responsible with. If you are a college student looking to build credit purchase only things that you can pay for. If you cannot guarantee that you can stay on top of payments, you shouldn’t be making purchases.

While in college, if you decide to build credit it can help jump-start your life after college. Filling out applications with your credit score will be easy because you’ve already started building credit.  In college, credit can be built through everyday expenses and can benefit you in the long run. Here are some simple ways of building credit that will not break the bank or “ruin your life,” but help you in the future.

Find a Credit Card

While in college, you may see a credit card offer dropped in your mailbox every week. Actually reading through the information and what the card offers is KEY. Look at interest rates and cash back rewards. Some cards have cash back rewards on points earned by using the card on things such as gas and groceries. By using a credit card for necessities and paying it off, you are earning easy credit while still in college.

Some cards offer cash back opportunities on travel. If you’re going away to college, using a credit card could be a great way to earn points for a visit back home or a weekend getaway. Remember, use a credit card on things you will be able to pay back on time. This way you will be building credit while also gaining reward points to redeem on things you want to do.

If you’re attending college you may want to check out student credit cards. Student credit cards can be a really great way to start building credit while you are in school. Be warned that you will still need to demonstrate a decent salary to qualify for a student credit card, simply being a student is not enough. Most student credit cards will not charge an annual fee and many offer additional perks.

 

Learn How Completing College Early Can Save You Money

 

Secure Credit Cards

If you don’t qualify for a student credit card or any traditional credit card because you don’t have a credit history look into secure credit cards. They work just like other credit cards but require a cash deposit, first. This deposit is usually in the hundreds or low thousands. If you make every payment in full and on time you’ll receive back your down payment. If you do not make payments on time or in full the lender keeps your down payment.

Rent

While being in college you will likely be moving into your FIRST apartment. An apartment can be a great way to start earning credit. Putting the rent in your name and paying it on time can assist in building credit. In order for rent to go towards your credit history, your landlord must be reporting the rent payments to one of the credit agencies. If your landlord isn’t reporting your rental payments it will not help you to build a credit history. In today’s society, it is also pretty uncommon for landlords to report rent payments to a credit agency.

If your landlord isn’t reporting your rent payments to a credit agency it can’t hurt to ask if they could start! When sharing an apartment with roommates, it is vital for everyone living there to pay their share of rent on time. Finding roommates that share accountability is important when you are building a good credit score.

Get a Credit Builder Loan

A loan that is in place to IMPROVE CREDIT?! Sign me up! When you have a credit builder loan, you make payments into your savings account. After one year, you will get the amount you paid back and increase your credit score! A credit builder loan does not require good credit to begin, you just have to show proof of income. Start by applying for a credit builder loan, and begin to make payments on time. In order for you to be benefiting from a credit builder loan, you must be paying on time. The pros to a credit builder loan include getting the money you put in and having a better credit score at the end of the year!

Become an Authorized User

Becoming an authorized user is a smart and easy way to embark on creating credit while in college. Being an authorized user means that you can use another person’s credit card and your name will be included on the account. The process simply has the account user add your name to the credit card account. As an authorized user, you will not be responsible for paying back debts on the credit card. This responsibility will legally be in the original account holder’s name. The main goal for being an authorized user is to increase your credit score by having an account holder with an outstanding credit history. If you have an account holder who is known for paying their debt on time, this will increase your score, because you’re on the account. Keep in mind that you should ask someone who is trusted and reliable when becoming an authorized user.

Start on Student Loan Payments

As a former college student, I know that going to school full time while working enough to have money to start paying off student loans can seem impossible. Remember, you do not have to pay off large amounts right away. While in college, consider putting money aside to start paying off loans when you can.

If you start loan payments early you will start to see positive growth on your credit score. The benefits of having student loans include helping build your credit score. If you decide to start paying off loans while in school, it will be before your loan deadline and will create less to pay off later. Even if you are not able to pay off large sums, these small amounts can make for fewer payments later on and a better credit score when you graduate from college.

Credit Utilization

A top way to build credit is not to utilize all the credit that is available to you. For example, if you have a credit card with a credit limit of $2,500 and the balance is $2,500 that would be 100% credit utilization. Credit utilization is important because it impacts your credit score. The maximum recommended credit utilization is about 30%. Therefore, if your credit card had a maximum limit of $2,500 then 30% of that would be $750. In this example, to avoid negatively impacting your credit score you should not spend over $750 on your credit card.

It can be difficult to be disciplined as a college student, but it’s important to remember that this money is not free. It’s also likely that this is probably your first credit card ever! Exciting, but this is a really important rule of thumb! This is a credit that you will eventually need to pay back. In an effort to build credit you want to be sure you’re creating good financial habits for yourself too. Be sure to stay disciplined and not utilize over 30% of your credit card.

BONUS: Credit Reports

While we are on the topic of creating good financial habits, the number one habit you can create is looking at your credit report. If you talk with any financial expert, this will be their number one piece of advice! Yearly, check your credit score and your credit report. Think about it like an annual physical at the doctor, but for your finances. Review your credit report to make sure that there are no errors or fraud to your credit history. If you visit AnnualCreditReport.com you can receive a free credit report from all three major credit agencies in the U.S. and a free credit report can be requested every 12 months.

Having paid off debt or using credit in college will prepare you for future payments on cars, houses, and throughout your adult life. Knowing your responsibilities and taking care of payments on time is key to achieving a better credit score by the end of your college career. Consider these options when deciding how to build credit and choose one that will benefit you in the long run.

 

Are Student Loans Impacting Your Credit Score?

 

NOTICE: Third Party Web Sites
Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.

Cards and Accounts That Pay You

Unless you’re hardcore off the grid and don’t need a credit score or credit history (not advised), you’re going to need bank accounts and at least one credit card. If you need them anyway, why not find the accounts that pay you back? There are tons of promotions for cards and accounts that will give you perks for signing up. It’s up to you to determine what account fits your needs, but these are the main types of offers we’ve seen.

 

Cards with Cash Back

Some people swear by cards that give them cash back. Cashback rewards tend to work best for people who use their credit card for all or most purchases and then pay it off in full each month. A quick tip is to pay the balance off before the interest accrues each month. If you choose not to pay off the balance each month you could actually be spending that money. Basically, what you pay in interest is going to reduce or even negate your reward. The average individual will not pay off their card’s balance each month this is how it makes sense for the credit card company to offer the reward. If you’re smart about it and don’t charge more than you can pay off each month, you’ll reap the reward.

 

There are multiple options for receiving cash back rewards. How you cash back will be applied will be dependent on what your credit card provider allows. Some cards will allow you to redeem your cash back for gift cards, paper checks, direct deposits, or even putting the cash back you earned back to your credit card balance.

 

If you believe that this type of card is best for you, understand the redemption threshold. Cash back credit cards often have a minimum redemption threshold. A minimum redemption is the amount of rewards that you must achieve before cashing in your cash back rewards. These redemption minimums can often be associated with reward credit cards as well.

 

Cards with Rewards

If rewards like frequent flier miles or points you can redeem for travel expenses are more your speed, check out cards with other types of rewards. Look at the conversion from dollars to points to what your points can be redeemed for. If you have to spend $10,000 for a $100 gift card, then that probably isn’t enough of a reward for you to care. But if you fly often for work or find a card that has good travel rewards and you can pay it off each month, this might be a nice way to add to your travel nest egg or get a good discount on a few trips each year.

 

How the rewards are calculated will be determined based on the credit card that you select and get approved for. Some reward cards will provide the same rewards rate per purchase regardless of balance. Another type is similar to a tiered cash-back credit card. Each purchase you make will fall into a category. Some categories offer a larger return than other categories.

 

A quick word of caution before signing up for a card like this is to know the type of borrower you are. If you typically do not pay your credit cards on time, have a balance, or budgeting is not your strong suit this is probably not the right credit card for you.

 

 

Cash Rewards on Bank Accounts

Bank accounts often offer cash rewards for signing on or setting up an account. You may often times see at your local community bank a large sign in the window with an amount on it for new customers who open up an account. This sign-on bonus is by far the most common type of cash back for a bank account. When considering opening up an account to get the sign-on bonus there may be conditions you have to meet. The small print and terms are so important when opening up any type of account. When opening an account, you have to make a pretty substantial initial deposit, and you might have to maintain it for a period of time as well in order to keep the sign-on bonus. You don’t want to count on a reward and then find out that it requires you to deposit $20,000 if you don’t have that much money.

 

Conditions can include a number of direct deposits or purchases you have to make within a certain period to qualify. This type of offer is fairly common when looking into high-yield checking or savings accounts. You’ll typically be required to have a specified number of transactions per month and have to have a direct deposit. If you’ve read all the terms and small print and feel the account is the right choice you should move forward.

 

Other Things to Consider

 

Know the Interest

If you are looking at a card for the rewards and it has a much higher interest rate than others, this should weigh into your decision. Even if you plan to pay the card off each month, you don’t want to end up using it in an emergency and struggle to make payments with interest later. If you already have other credit cards, have a plan for which card should be used where and how you’re going to pay them.

 

Look at Annual Fees

Some reward and cash-back cards have a pretty hefty annual fee. Don’t sign up for a card until you know what the annual fee is. Make sure if there is a fee, that it makes sense for how you intend to use the card. If saving money is the name of the game for you, look for a card with no annual fee.

 

Know the Requirements

Requirements for different types of accounts vary wildly. There could be a minimum deposit, amount, number of purchases, or balance. Many companies utilize different types of requirements that you may have to meet to get rewarded. Keep an eye out for those requirements and see if you qualify. If it doesn’t match your situation, don’t do it.

 

Check the Terms and Conditions

Always read the fine print and make sure you understand it. This rule should be applied t anything and everything. Make sure you’re reading any documentation fully and that you understand. Reading the terms and conditions will help to prevent any surprises. If there’s something you’re not sure of, read further or talk to customer service for more information. You always want to be sure that you know what you’re getting into before you sign up so that you don’t end up in a bad situation.

 

 

Check Out These Common Credit Card Myths

Debt Snowball Method

When you took out loans for your education, you were likely laser-focused, hurdling goal after goal to finish the race as quickly as possible and get that diploma. You may have even used that vigorous momentum to land your first job out of school. When the vicious cycle of bills begins to eat away at your paycheck, you may feel like your financial life is freezing in time. Now buried in student loan debt, all you can move is your eyes, and all you can see is an avalanche of credit card debt, car payments, and maybe even a mortgage, coming straight for you.

 

Debt Snowball Method

While researching the quickest way to dig yourself out, you may have heard of the ‘debt snowball method’ as prescribed by financial expert Dave Ramsey. While other methods advise tackling your biggest debts with the highest interest rates first, the debt snowball method is that you pay down your smallest debt first and use that momentum to carry into the next.

 

The makings of a perfect snowball

 

As eager as you may be to start chipping away at even your smallest debt, it should be noted that having a rigorous monthly budget with a comfortable emergency fund is the cornerstone of Ramsey’s entire philosophy. Without them, the smallest bump in the road to repayment can cause serious setbacks.

 

After you assign every dollar in your budget and gather an emergency fund buffer around your finances, list your debts from smallest to largest. Don’t pay any mind to interest rates or due dates; the only figure that’s important right now is the total loan balance on each account.

Staging a successful siege

 

Next, to avoid racking up more debt, make minimum payments on all your debts except the smallest. Then use every spare dollar in your budget to pay as much as possible on your smallest debt. The more you can pay at the beginning, the bigger your snowball will become. The psychological victory from having a few quick wins will boost your confidence and help you gain momentum.

 

By the time you start making payments on the bigger debts, you have much more cash freed up from the absence of your smaller debts. At this point, the momentum you have will encourage you to stick with the changes in your financial behavior. Those changes have the power to get you out of debt and keep you from falling back into it.

 

Even though it may cost more money than paying off your highest interest rate debts first, the snowball method allows you to make short (but immediate) strides towards a debt-free life. As tempting as it may be to kick down the door and come in guns blazing, you can really set yourself up for a much more successful siege with a little bit of planning and a whole lot of discipline.

 

Refinancing your snowball

 

Another great way to position yourself for success is to look into refinancing your student loan debt. Like the debt snowball method, the proper planning and smarter borrowing associated with refinancing enables you to proceed through the repayment process in the most efficient manner. Student loan interest rates are nearing all-time lows, and consolidating your multiple student loans into a single loan with a fixed rate secures the notion that you’ve done everything you can do to simplify that particular part of your finances.

 

Our customers have reported that they are saving an average of $309 every month and should see an average of $20,936 in total savings after refinancing their student loans with Education Loan Finance.* Consider the impact refinancing could have just by applying those savings to your other forms of debt. With proper planning and smarter borrowing, you can avert the threat of avalanche and most efficiently summit the mountain range of your financial goals.

 

See Our Simplest Guide to Student Loan Refinancing Part 1

 

* Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 8/16/2016 and 10/25/2018. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.

4 Common Credit Card Myths

Most people have mixed feelings about credit cards. For some, they are a great tool for building credit. For others, they are the first form of consumer debt that many people incur. Although the majority of Americans own at least one credit card, a surprising number of people struggle with basic information about the terms, requirements, and the multiple ways they impact personal credit profiles. According to a recent survey from NerdWallet, most credit card users are unaware of the effects that many common actions have on their credit scores. More than half of consumers do not know when they begin being charged interest on credit card purchases, and 54 percent do not know that carrying a credit card balance does not help a person’s credit score. These findings support the idea that, while credit cards are widely used, the majority of Americans are unfamiliar with all of the information necessary to use them correctly. Here are four common credit card myths and why you should know about them:

Credit Card Myth #1: Carrying a balance is good for your credit score.

As stated above, more than half of credit card users think that the simple act of carrying a balance from month to month helps build credit. This is simply untrue — at a minimum, carrying a credit card balance often costs you money, and higher balances can actually lower your score by counting against your available credit. Users who only pay the minimum payment each month end up being charged interest on the average daily balance on the card. Increases in credit scores are influenced by factors such as maintaining on-time payments and keeping balances low compared to available credit limits (credit utilization ratio), both of which can be accomplished while still paying off your entire bill each month. Responsible credit card usage can help your credit score, but spare yourself from unnecessary fees and snowballing debt by only charging what you can afford to pay in full on time every month.

Credit Card Myth #2: The amount you charge to your credit card each month is not relevant.

Most credit cards come with a monthly limit. Many credit card users, especially first-time users, see that limit as the maximum amount they are able to spend that month and simply spending less the maximum is acceptable. While staying within your limit is important, the amount you charge to your card each month actually matters. When determining your FICO credit score,  MyFico.com highlights how several factors are taken into consideration:

  • Payment History (35%)
  • Amounts Owed (30%)
  • Length of Credit History (15%)
  • New Credit (10%)
  • Types of Credit Used (10%)

Amounts owed, which accounts for 30 percent of your credit score, is also known as your credit utilization. Your credit utilization is essentially the amount of your credit limit you use — the percentage of the amount you owe relative to the amount you have available. The lower the utilization percentage, the better — the higher the percentage, the worse effect it has on your credit score. For example, say you own a credit card with a $1,000 limit. If you charge $300 a month to your card, and pay it off, you will have a 30 percent utilization ratio, which will be good for your credit score. For a general rule of thumb, you want to stay at 30 percent or less of your overall credit limit.

Credit Card Myth #3: You should not accept a credit limit increase.

This one goes hand-in-hand with Myth #2. Many people believe that a credit limit increase is a way to get them to spend more money. While this could be true, accepting the increase can be advantageous as long as you are disciplined enough to maintain responsible spending habits. Suppose your bank offers you a $500 limit increase from your original $1,000, giving you a new limit of $1,500. If you keep your card usage the same by continuing to charge $300 a month, your credit utilization percentage will decrease from 30 percent to 20 percent. Therefore, accepting the credit limit increase can work in your favor and may help your credit score. On the other hand, if you tend to overspend and think you may be tempted to charge more to your card, declining the increase might be a better idea.

Credit Card Myth #4: Applying for a new credit card will damage your credit score for a long time.

When you apply for a new card, the bank will pull a “hard inquiry” in order to check your credit score before making a decision. Typically, these hard inquiries will result in a temporary dip in your credit score; however, they will only stay on your credit report for around two years. As long as you use the credit card responsibly and stay on top of payments, your new card can actually increase your credit score over time by adding to your credit history. However, try to stay away from applying for new cards too often (or within a short period), as this can have a negative effect on your credit score.

The Bottom Line

People have differing opinions on credit cards, and the abundance of misinformation surrounding them makes finding the right balance challenging. If you know all the facts, and how to use your card correctly and responsibly, they can be an effective tool for building good credit and help you be more likely to get the best rates on home loans, auto loans, education loans, and more.

How to Build Credit: A Beginner’s Guide

Updated February 12, 2020

 

Building credit is a topic that isn’t always in the forefront of young adults’ minds. Up until a certain point in life, it is just something that they have never really had to worry about (or knew that it actually existed). However, with the transition from student to full-fledged adult comes an abundance of new responsibilities, and one of the most important challenges recent graduates and young professionals will face is establishing good credit.

 

Having a good credit score is crucial for many adult decisions, including purchasing a car, becoming a homeowner, and even getting hired for a job. However, a solid credit score does not just happen. It must be built and maintained over a period of time. That is right — you will have to start from the ground up. Fortunately, there are several tools you can take advantage of as a college student, recent graduate, or young adult to begin the process.

 

First, we will cover some basics about credit scores. There are different types of scores, but the FICO score is the one most widely used by lenders. These scores are calculated by the three credit bureaus — Experian, Equifax, and TransUnion — and scores range from 300 to 850. This score takes a variety of factors into account, including how quickly you pay your bills, how long you have maintained accounts over time, the percentage of your monthly credit limit that you spend, and more. The higher the score, the easier it could be to obtain a credit card, take out a loan, and get lower interest rates.

 

You now know how credit scores work, but how do you actually begin the process of building credit from scratch? There are three major tools you can use to do so: credit cards, loans, and rent payments.

 

1. Credit Cards

One of the simplest ways to establish credit is through credit cards. Before taking out a credit card be sure to:

  • Before making large purchases, develop a plan for how you will repay what you owe in a timely manner.
  • Try to keep your balance below 35 percent of your monthly credit limit.
  • You do not have to charge every purchase on your credit card in order to build credit. Using your card sparingly and for smaller purchases, such as groceries, and paying off your balance each month will raise your credit score.
  • Never miss a payment. Failing to make a payment on time could negatively impact your credit score.

In addition to traditional credit cards, there are also a few alternatives you can use to boost your credit. For example, a retail or store card is a type of credit card that can only be used at a certain store. They typically are easier to obtain than a standard credit card, but they often come with higher interest rates. You can also get a gas card (credit card used specifically at certain gas stations), which is a great way to make sure you do not overspend while still boosting credit.

 

Related >> ELFI Credit Series: Don’t Just Build Good Credit – Maintain It

 

2. Loans

A slower (but still solid) way to establish credit is by taking out a loan — whether it be an educational loan, a home loan, or some other type of financed purchase. Many young adults have to borrow money at some point to help finance their education or purchase a home, to name a few, and having a moderate amount of loans in good standing can be a great way to build credit. However, because payment history is the most influential factor in calculating a credit score, it is absolutely essential that you pay your loans on time each month.

 

A good way to ensure punctuality is to set up automatic payments (whenever possible), set reminders, or make your monthly payments as affordable as possible. Figure out what amount is feasible for you to pay based on your income, and talk to your lender about the possibility of lowering your monthly rate.

 

3. Rent

A third option for establishing credit, and one that is often overlooked, is making timely rent payments. Two of the three credit bureaus, Experian and TransUnion, now give the option to factor monthly rent payments into your credit score. If you are a renter, this is a solid way to build credit history in college, after college, and as a young professional (and without a credit card).

 

Establishing a good credit history can seem like a daunting process, and getting started can be challenging for young people who are just beginning to achieve financial independence. Just remember, everyone must start somewhere. If you can use one or more of the above tools responsibly, you will be well on your way to building credit and setting yourself up for financial success in the future.

 

Click for Tips on How to Improve Your Partner’s Credit Score

 


 

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