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Whether you're a young adult applying for credit for the first time, or you just haven't used credit in a while, when you finally do want to get credit it can be a frustrating process. You need a credit history to build credit, but no one will approve you for new credit without a credit history — a chicken and the egg scenario. Who knows how these rules came to be, but we'll show you how to work with them.
DON'TS to Avoid When Building Your Credit
DON'T apply for new credit cards, even credit cards offered to you at retail stores. If more than one creditor has decided that you aren't creditworthy, chances are the rest of the creditors will reject you too. And every time you send in a new application, your credit score goes down a little bit.
DON'T bother getting a loan with a co-signer just for the sake of building your credit. Before the recession, this was a popular tactic that a lot of people used and that worked fairly well. But these days, creditors are a lot more interested in you proving that you are responsible with your money, not just your parents or your good friends. So getting a co-signed loan or being added as an authorized user on someone else's credit card are going to do little to nothing to build your credit up.
Apply for a Secured Credit Card
Secured cards are great because they prevent you from getting into trouble with debt since you provide the cash up front. Then, when you sue the card, you are essentially using up money that you've already deposited ahead of time. Plus, your card activity is usually reported to the three credit bureaus, helping you raise your credit score and build credit history on your credit report.
Before you select a secured card, keep these tips in mind:
1. Make sure that the activity is in fact reported to the credit bureaus. Most, but not all secured cards, do this.
2. Make your payments on time! The easiest way to ruin your credit is to make late payments.
3. Don't max your card out. Try to keep your credit utilization at 30% for the best results and keep in mind that your total credit limit will probably be fairly small.
4. Choose a card with low fees. Some charge ridiculous fees that just aren't worth it.
5. Be patient and diligent. It's going to take 6 months to a year to build up your credit history, so be prepared to wait a while before applying for a traditional credit card or a loan.
One secured card that does report to the credit bureaus, charges relatively low fees, and consistently get positive reviews from actual account holders is the Orchard Bank secured card.
Unfortunately, it's really easy to destroy your credit with a handful of bad decisions. But building up your credit history from scratch can take a very long time. That's why you have to remain patient and diligent. If you stick with it, you'll be glad you did.
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