Using Credit Cards to Establish Credit History
Your credit score is a three-digit number representing how you use and repay credit. If you’ve never had credit, you can’t be scored. That can make everything from buying cars to renting apartments more difficult.1 So how do you get credit without ever having used credit?
Try for a Secured Credit Card
The easiest way to get your first credit card is to get a secured card. This is a credit card you secure with a security deposit, which is the same as the approved credit limit on the card. The deposit acts as a form of collateral; if you fail to make payments, the issuer can claim your deposit to recoup some or all of the unpaid balance.
Secured cards are not prepaid debit cards. Every month, you’ll get a bill, and your credit card issuer will report how you use the card to credit reporting agencies, which will help you build a credit history. Some secured credit cards also offer rewards structures similar to that of unsecured credit cards.
Go Easy With the New Card
Once you have a secured credit card, don’t spend much. Use it for basics like gas or groceries.
The two biggest factors in your credit score are payment history (paying your bill on time) and credit utilization (how much of your available credit you use).2 Using a low percentage of your limit and paying your bill off in full every month will set you up with a record of on-time payments and a favorable credit utilization ratio.
Sooner Is Better Than Later
Another factor in your credit score is the length of your credit history. Credit history length includes both when you got your first card and the average age of all your cards, so the sooner you get a card, the better.3