Adulting 101: How to Start Building Credit

Ah, credit. Marvelous, mysterious, credit. The subject of CreditKarma commercials and prenups. Yet another crucial part of adulthood that no one ever teaches you about in school. But we got the pythagorean theorem down pat … right? Yet we don’t know how to start building credit.

Why Does Building Credit Matter?

If you’re wondering how to start building credit, you may also be wondering why you even need to build credit at all.

The answer: your credit score.

For better or worse, we live in an age where your credit score affects almost every big decision you’ll make.

It can determine where you live. Even if you’re not planning to buy a house anytime soon, your credit score can affect whether or not landlords rent to you or not.

It can determine what you drive. Unless you’re planning on paying for a car out of pocket (a good idea, but not always realistic) you’re going to need an auto loan. And to get the best auto loan possible with the best interest rate, you need a decent credit score.

It can determine whether or not you get necessities. Utility companies, for example, often run credit checks to ensure you are someone they trust to pay their bills on time. If you have poor credit or no credit at all, that “proves” to them that you may not be reliable

It can determine where you get employed. Not all employers check the credit scores of their potential employees, but some do.

In short, credit affects everything. We could argue all day about the ethics of this system, but for now, it is what it is. So the best time to start building credit is now.

Get a Credit Builder Loan

For real! Also called things like, “Fresh Start Loans” or “Starting Over Loans,” these loans are exactly what they sound like, and a lot of credit unions have them.

Basically, a credit builder loan acts a lot like that friend you give your phone to when you’re out drinking so that under no circumstances are you tempted to text your ex.

The amount you borrow is stowed away in a bank account while you make payments. You get the money plus interest once the loan is paid off, and each on-time payment helps to build credit.

Get a Co-Signer

A common option for student loans or first credit cards, co-signer agreements require that someone showcase their own good credit to help you meet your financial needs by co-signing on a loan or credit card with you. Your co-signer could be anyone with a better credit score than you; a parent, a friend, a significant other, etc.

Having a co-signer can quickly boost your credit score and open up doors you didn’t have before. And making regular, on-time payments builds a positive credit history.

Not going to lie here, this one can be risky. Your co-signer becomes fully responsible for the loan amount and jeopardizes their own credit if you don’t make your required payments on-time. You also risk straining your personal relationship with them. Assess this option and your own financial responsibility critically.

Become an Authorized Card Holder

A family member with good credit can add you as an authorized card holder to one of the credit cards that they’ve had for a long time. Just make sure the card issuer reports authorized user activity to the credit bureaus.

The credit card’s history of on-time payments will boost your credit score, and you never have to use it. If you do, of course, make sure you remember to pay your statements on-time.

Join a Credit Union. Not a Bank.

Credit Unions can be a great way to build credit because they have a lot of perks not offered at most banks.

First of all, the primary goal of credit unions is to help you and see you thrive.

A bank’s primary goal? Profit.

You can trust that the support staff at a Credit Union has your best interest at heart when giving recommendations.

Second, many Credit Unions offer free coaching, financial literacy classes and online tools to help you learn how to start building credit and become financially independent.

Third, Credit Unions are more forgiving of bad or non-existent credit than banks, and are more likely to work with you to secure a small loan.

We don’t really have much of a choice when it comes to whether or not to build credit. But we do have a choice when it comes to where we start building that credit. So if you’re going to play into the system, you might as well do it with a financial institution that encourages wealth distribution.

That’s a credit union.