Your credit score is like a financial reputation—it lets people know how you handle debt and other obligations. If you want a car, mortgage, apartment, or even a job, you will likely need good credit.
Of course, to get good credit, you first need to establish any credit—which many people don't do. In fact, 26 million Americans are "credit invisible" (meaning they have no credit history), according to the Consumer Finance Protection Bureau reports.
This may be because building credit seems like a counterintuitive process. You need to go into debt to do it, and that can be scary. However, by taking some simple steps, you can set yourself and your credit up for success now and in the future.
Piggyback On Someone Else
One simple way to boost a low or nonexistent credit score is to piggyback on someone with an established score. You should choose a person you share a trusting relationship with for this, a spouse or parent for instance.
Ask them to add you as an authorized user to their credit card account. As they make their payments, your score may benefit along with theirs. Of course, if they miss payments, your score could take a hit, too.
Talk to the person you choose about their financial habits before exploring this route. They'll likely want to set expectations about using their credit as well. After all, they're doing this to help you spend wisely—not spend more.
Get A Secured Credit Card
Once you handle being an authorized user (or if you don't have someone to piggyback on), apply for your own secured credit card at your bank or credit union to build your credit further.
A secured credit card is backed by a cash deposit (which becomes your credit limit), and you can use it for purchases just like any other card. However, instead of a revolving line of credit, once you spend up to your deposited amount, that's it.
In that way, secured credit cards are similar to debit cards—except you have to pay a bill for your secured card each month. Paying this in full and on time will show that you know how to handle debt. And doing this should be easy too, since you have money already tied to the account.
Use Credit Wisely
Once you start using an unsecured credit card, keep up with the good habits you've established: always pay on time, pay in full (if you can), and avoid overextending yourself. These will put you in position to get a higher spending limit and qualify for more cards—both of which can result in a more robust rating, too.
Report Rent Payments
If you want to build credit without a card, take advantage of a few different options. One clever tactic is reporting rent payments. Two of the three major credit bureaus now include these on your credit report. Paying a different type of debt (student loans, for instance) can help build your credit, too.
You can also take steps that won't improve your score but will make you look better to a potential lender. For instance, maintaining steady employment and managing a bank account. The latter will likely work best if you apply for a line of credit or loan from the institution that holds this account.
Credit bureaus look for a 24-month history when evaluating your ability to repay. So, start building your credit as early as you can—and don't expect your score to change overnight. Put the work into building a good reputation, and it will return the favor.