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SALT LAKE CITY — Financial experts say building your credit from scratch is an important part of becoming an adult — and not something you should do lightly.
KSL’s Dave and Dujanovic had a listener reach out during a show this week during their daily Right on the Money segment asking about credit.
“I’m a freshly graduated Millennial,” the listener said. “I’ve got student debt but never had a credit card. What’s the best way to start getting good credit?”
So, where do you start? Dave & Dujanovic turned to credit experts from NerdWallet and Credit Karma to find out what you need to know.
NerdWallet’s Erin El Issa and Bev O’Shea say in order to have a FICO score in the first place, you’ll need to have had at least one line of credit open for at least 6 months. So that means if you’re starting from scratch, it’ll take at least that long to start seeing anything actions you take show up on your reports.
Unsecured Credit Cards
One of the first options that can help in building credit, especially if you’re starting from scratch, NerdWallet says, is through a secured credit card.
A secured credit card is different than your regular unsecured credit card because it is backed by a cash deposit that you put into it up front.
It works just like a regular credit card and you’re able to use it like one to make purchases. They aren’t meant to be used forever, but El Issa and O’Shea say it’s a great option to build credit up to qualify for an unsecured card.
According to NerdWallet’s team, a credit-builder loan is another great option to start building your credit and saving at the same time.
A credit-builder loan does exactly what its name implies, El Issa and O’Shea say: it builds your credit. However, credit-builder loans are different from normal loans in that you have to make all of the payments first before you get the money.
Most local credit unions or community banks offer these types of loans. In effect, El Issa and O’Shea say, the loans are like a forced savings account.
Finding a bill that you’re already paying consistently can be a great way to build credit if you transfer that payment to a credit card and pay it off entirely every month.
Experts at NerdWallet and Credit Karma suggest using services like RentTrack or PayYourRent. Services like these can help report your on-time payments to credit reporting agencies even if your landlord doesn’t.
So if you’ve been dinged on your credit score for any reason, what should you do to rebuild your credit? For this, we turned to Louis DeNicola, a personal finance writer for Credit Karma.
Building credit takes time, DeNicola said. One of the best ways to make sure that your credit score is moving in the right direction is to ensure that you’re keeping up with good financial habits and being responsible with the way you are using your credit.
Keep utilization low
DeNicola writes that you should keep credit utilization below 30% on all your credit cards. That means if your credit limit on a card is $5,000, don’t charge more than $1,500.
Pay on time
DeNicola says there’s no reason not to pay 100% of your payments on time, every time. It doesn’t just need to be your credit accounts, El Issa and O’Shea add, but your bills and other outstanding debt payments should be paid on time as well.
Applying for multiple credit accounts all at once can cause a big hit to your score. NerdWallet recommends that if you are applying for multiple lines of credit you wait at least 6 months between applications
Keep your existing accounts open
If you don’t have a really good reason to close an account, keep them open, El Issa and O’Shea say. Having older accounts and lines of credit can help with the indicators that credit companies look at.
You don’t need to carry a balance
It’s a myth that you need to carry a balance to boost your credit. According to CreditKarma, it could even hurt your score, especially if your card carries a high interest rate.
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