For young people who have no credit history, building good credit can seem a bit tricky. After all, you must have a decent credit history to get a credit card, loan or other credit line, but how can you build credit without access to credit? If you are new to the world of credit, this may seem like a difficult and complex problem to solve.
But you are not the first person to have this issue, and there are several options available for beginning a good credit history. In fact, almost everyone has dealt with this very same dilemma as a young adult, and everyone has to start somewhere. That is why some banks, credit card companies and lending institutions offer options specifically designed to help young people without credit begin their credit history.
However, finding the right technique for beginning your credit is only half of the problem. Once you obtain your first credit card or loan, you need to know how to responsibly manage your credit. Mismanaging these early credit lines has been the downfall of many young people financially, and it is very easy to be drawn into the trap of borrowing more than you can afford to pay.
Especially after you get your first credit card, all of the new gadgets, clothes and other items you want can be very enticing, and you may fall in over your head without realizing it. Understanding the basics of how credit works is important, but knowing how to properly utilize it is crucial. If you are able to begin your credit history the right way, you will have access to a nearly unlimited amount of benefits, and you will have begun your financial life on the right foot.
Tools to Build Credit
Even if you have never had a loan or credit card, you may still have access to credit options that can help you build a good history. Most of these options are designed specifically for this purpose and help young people use and learn about credit without putting the financial institution at great risk.
1. Student Credit Card
If you are a college student and you have no previous credit history, you may qualify for a student credit card. These are essentially the same as traditional credit cards, but they come with lower balances and more restrictions, making them the perfect option for an inexperienced young person to begin building credit. You can research the specifications and requirements for different student cards by researching online credit card reviews.
2. Secured Credit Cards
If you don’t qualify for a student credit card, you could begin with a secured card. Unlike traditional credit cards, these require an initial cash deposit which will then be used, for all intents and purposes, as your credit line.
3. Secured Loan
Similar to a secured credit card, a secured loan is designed specifically for building credit and puts the lending institution at no real risk. These allow you to “borrow” a certain amount of money, but that money is held by the lending institution until you have fully paid back the loan. It is more similar to a forced savings account, but it does help young people build credit.
If you are unable or unready to get credit on your own, you could do so with the help of a family member. This person could co-sign for a loan or credit card which would be in your name, but they would still be held responsible if you do not pay your bill.
A similar option would be to become an authorized user on a family member’s credit card. Although the credit would not necessarily be in your name, it would still allow for favorable reporting to the credit bureaus, assuming it is used and paid properly.