Building credit is important for all ages.  We have recently seen a few estate cases where the surviving spouse with many credit cards and car loans through the years find that they do not have their own individual credit.  The credit cards they hold were issued as the second card and their name was the co-name on a loan.  Suddenly, they need to establish credit in their 70s.  According to the Consumer Financial Protection Bureau (CFPB), an estimated 45 million Americans may not have their own credit.

You need good credit to qualify for credit but how do you establish that credit?   Consider applying for an entry-level credit card.  This could be a secured credit card that requires a cash deposit to serve as collateral if you miss a payment.  A store or gas credit card could also be an option but beware of high interest rates.  There are also student credit cards available to those just starting out.  With the student credit card, they typically have lower credit limits, and this can be helpful for minimizing any potential problems if the student has trouble managing the card.  You may need a co-signer for your first card, but it will at least start the credit-building process for you.  Make sure the credit card company you choose reports to the major credit bureaus.

Establish banking relationships by opening checking and savings accounts.  While this will not directly establish your credit history, lenders usually ask for bank account numbers on credit applications.  If your account remains in good standing, this can help the lender know that you can manage money.

Student, auto and secured loans are another way to build credit.  On-time payments will boost your credit, but keep in mind that overdue payments will have an adverse effect on your credit scores.  Automatic payments can be helpful if you have trouble remembering to pay.  An auto loan with timely payments will build your credit.  Even if you have the cash to pay for a car, it may be wise to set up a loan if the interest rates are reasonable and then just set up automated payments directly with your bank account.  A secured loan, also known as a credit-builder loan, works like a secured credit card.  You pay a deposit upfront, which is used as collateral if you default on your payments.

Mortgages are another way to build credit.  In some cases, renters may also build credit by making on-time payments.  If your landlord doesn’t report your positive payment history to credit report agencies, some services can do that for you.  You can ask your utility company to report your on-time payments, too.   

Once you are approved for credit, practice good habits and keep your credit history moving in a positive direction.  Don’t miss payments or make past due payments.  Try not to spend too much on credit that you cannot afford.  Keep an eye on manageable interest rates.  If you maintain your credit, it will help you to be better prepared to meet your financial goals.

Lisa Dugan

Posted July 13, 2018