7 Strategies Every Beginner Should Use When Building Credit

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Learning how to build credit for the first time isn’t always easy, even for the most seasoned consumer.

The good news is it’s a pretty straightforward and simple process, though getting there won’t happen overnight. But if you follow the steps below, you can learn how to establish first-time credit while also building solid financial habits that will keep you from falling into debt.

What is credit?

When you’re thinking about how to build your credit for the first time, there are a few things you should know. Let’s first focus on some terminology. Those are some of the main terms you need to know when it comes to building credit:

  • Credit: Money that has been lent to you by a financial institution.
  • Creditor: A financial institution, retailer, or other company lending you money via a loan or line of credit.
  • Credit Report: A report that reflects the credit accounts you have, your payment history, your balances, and other key information that reflects your borrowing behavior.
  • Credit Reporting Agency (CRA): Companies responsible for compiling and maintaining your credit report. The three most common CRAs are Experian, TransUnion, and Equifax.
  • Credit Score: A score of your behavior as a borrower, not to be confused with your credit report. It’s also not on your credit report.
  • FICO and VantageScore: Two top credit score developers in the U.S.
  • The Fair Credit Reporting Act: This act protects the accuracy of the information on your credit report. It legally binds CRAs to only report accurate information on your credit file, among other things.

While we’re at it, here are the major factors that play into your credit score, as described by Experian:

  • Payment history
  • Credit utilization
  • Length of credit history
  • New credit
  • Type of credit
  • Public records (bankruptcy, tax liens, etc.)

How to build credit for the first time

1. Be an authorized user on your parent’s credit card

One easy tip on how to establish first-time credit is to ask your parents to add you as an authorized user on their credit card. If your parents are responsible with their credit cards, pay their bills on time, and don’t max them out, then this is an easy way to start building credit fast.

The best part is you don’t need to use the card. Instead, you can enjoy a budding credit score just by having your name on the account.

2. Sign up for a secured credit card

When you’re ready to try credit on your own for the first time, a secured credit card is a great way to do it. Secured credit cards are just like normal credit cards, but they require you to put down a deposit to get approved.

Below are a few benefits of this type of credit card:

  • It’s easy to get approved.
  • It comes with a relatively low credit limit.
  • The card won’t let you charge more than you paid as a security deposit.

It’s easy for someone to slowly build up charges on a credit card until they become almost impossible to pay back. Many begin a quick descent into credit card debt that way.

That’s why it’s so important to play it safe while you’re still figuring out how to build good credit habits.

Since secured credit cards don’t come with high credit limits, they allow you to try your hand at using credit cards without risking the possibility of falling deep into debt. You can use a secured card as your training wheels before you move on to traditional credit cards.

3. Pay your balance in full every month

The best habit you can build is to pay your card in full every month. If you nail this habit while you’re learning to establish first-time credit, you’ll be light-years ahead of many long-time credit users.

Remember, it only takes a few casual swipes on your credit card to raise your balance to more than you can afford. While small charges don’t feel like they’ll add up to much, they do – and fast.

What’s more, if you carry a balance over from month to month, then the interest charges can multiply your balances more than you could have imagined. So do yourself a favor and pay off your secured credit card every month.

Need help reading and understanding your credit statement? This template from the Consumer Finance Protection Bureau (CFPB) helps you see what to look for on your monthly credit card bill.

4. Upgrade to a traditional credit card

There’s another benefit to secured credit cards. After roughly six months to one year of responsible secured credit card usage, you can likely upgrade to a traditional credit card.

Not only that, many credit card issuers will review your account automatically to see if you’re able to upgrade sooner. Once you either close your secured credit card or upgrade to a traditional credit card, you’ll get your security deposit back as long as your balance was paid in full.

When you transition to a traditional credit card, you’re going to go from a small credit limit to a potentially much higher one. However, the best thing you could do at this point is to pretend you didn’t get a higher limit.

This is not a time to let the high limit tempt you into spending more than you can afford. Now, more than ever, it’s important to maintain those good credit habits you worked so hard to develop.

5. Avoid carrying a balance

When you carry a balance month-to-month, it’s way too easy to fall into a credit card debt hole and may take years to climb out.

While potential creditors want to see that you’re using credit, that doesn’t mean you have to go into debt. A credit score is all about showing how well you manage the money lent to you.

If you were lending your friend money, you’d want to be paid back, right? That’s what would tell you that your friend is responsible. The same goes for you and your credit cards.

Use them, then pay them in full each month. Avoid credit card debt like your financial future depends on it – because it does.

6. Pay all of your bills on time

Two factors that are the most influential when it comes to your credit score: paying on time and maintaining zero to low balances on revolving debt.

The first factor, payment history, is an easy win when it comes to learning how to build credit for the first time. After all, if you pay your bills on time every month, then you’re doing one of the best things you can to build good credit.

But that doesn’t just mean your credit card bills. That means your rent, your phone bill, your utilities, doctor’s bills, and just about any other bill you can think of. While not all of these things relate to credit, unpaid bills can be reported on your credit history by all kinds of companies.

Even worse, if your accounts go into full default and are sold to a collections agency, then your credit will suffer. Collections accounts stay on your credit for seven years. Don’t let this happen to you.

Pay all of your bills on time. And if you think you really won’t be able to make one, contact your creditor immediately and see if you can work out a payment plan.

7. Avoid student loan default

Of all the bills in the world that can become overwhelming, student loans can certainly top the list. But you want to avoid student loan default.

Unlike other types of debt, student loans are nearly impossible to discharge through bankruptcy. What’s more, student loans getting sent to collections will damage your credit. Plus, it makes it hard for you to know who’s servicing them when you are ready to start repaying.

If you have federal student loans and you’re struggling to pay them back, you have access to the following options:

And if you have private student loans and the payments are too high, see if you can refinance to get a lower interest rate. You’re not likely to get approved for this on your own if you’re still new to credit, but there is often the option to add a co-signer.

But if you refinance your student loans with the help of a cosigner, it’s more imperative than ever to pay your bill in full and on time every month. That’s because a delinquency on your part won’t just hurt your credit – it’ll hurt your cosigner’s credit too.

Best practices for checking your credit

1. Get your free annual credit report

Everyone is entitled to their credit report once a year from all three credit reporting agencies. You can get yours at AnnualCreditReport.com.

Because you have access to your credit report from each of the three CRAs, you could check several times per year by spacing them out. For example, you could check your Experian credit report early in the year, TransUnion a few months later, and Equifax a few months later.

That way you’re getting your eye on your credit regularly without having to pay anything extra to do it. Just keep in mind that these credit reports can vary slightly as different creditors might not always report to all three CRAs.

2. Dispute any errors or fraudulent accounts

Even though your credit reports from each of the CRAs can vary, that doesn’t mean you should ignore large inconsistencies. If you find that one or more of your credit reports is showing an error or a fraudulent account, immediately dispute it with the CRA showing the incorrect data.

Never ignore an error on your credit report. It could signify fraudulent activity or it could mean that someone else’s data is being included on your report. Either of these situations can greatly damage your credit, so take care of it early.

3. Get your free credit score

As you’re thinking about how to build your credit for the first time, your credit score might be the last thing on your mind. But after a few months of credit-building, it’s a good idea to start looking at your score to see where you stand.

There are many ways to get your credit score for free these days. But there’s one very important thing to keep in mind: the score you see isn’t necessarily the same one your lender sees.

Many companies who can show you your credit score only show you an educational credit score. That’s a score meant to give you an idea of what your score is.

However, lenders tend to use different types of credit scores, sometimes even proprietary ones or industry-specific scores. Since that changes how the calculations work, your score will be different.

As for where you can check your credit score for free, many banks and credit card issuers now let you see that information when you log into your account online, But if yours doesn’t, check out this list of places where you can get your free credit score.

One final word of advice

One of the most important pieces of advice someone can give to someone who’s learning how to establish first-time credit is to not obsess over their credit score.

The worst thing you can do is focus so much on your credit score that you end up making decisions that are bad for your finances.

In fact, an important principle of building credit is to focus on things that are good for your credit and your money, such as:

  • Using revolving credit but never letting it turn into debt.
  • Paying on time.
  • Not taking on any new loans unless you need them.

If the decisions you’re making are good for your money, there’s a good chance they’ll be good for your credit.

Don’t forget: it takes time to learn how to build credit for the first time and maintain the good habits you’ve learned. Stay focused, stay responsible, and let time do its thing. Soon enough, you’ll have a good credit score and the tools to help you keep it that way.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderVariable APREligible Degrees 
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1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on ourstudent loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.899% APR to 8.179% APR (with AutoPay). Variable rates from 2.570% APR to 6.980% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. SoFi rate ranges are current as of September 14, 2018 and are subject to change without notice. See APR examples and terms. Lowest variable rate of 2.570% APR assumes the current index rate derived from the 1-month LIBOR of 2.08% plus 0.740% margin minus 0.25% AutoPay discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.57%-8.17% (2.57%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.75%-8.69% (3.75%-8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Estimated average savings amount is based on 14,659 Education Refinance Loan customers who saved on loans between August 1, 2017 and July 31, 2018. The calculation is derived by averaging monthly savings across Education Refinance Loan customers whose payment amounts decreased after refinancing, calculated by taking the monthly payment prior to refinancing minus the monthly payment after refinancing. We excluded monthly savings from customers that exceeded $4,375 and were lower than $20 to minimize risk of data error skewing the savings amounts. Savings will vary based on interest rates, balances and remaining repayment term of loans to be refinanced. Borrower’s overall repayment amount may be higher than the loans they are refinancing even if monthly payments are lower.

2.57% – 6.98%3Undergrad
& Graduate
Visit SoFi
2.47% – 5.87%1Undergrad
& Graduate
Visit Earnest
2.47% – 8.03%4Undergrad
& Graduate
Visit Lendkey
2.80% – 6.22%2Undergrad
& Graduate
Visit Laurel Road
2.48% – 6.25%5Undergrad
& Graduate
Visit CommonBond
2.57% – 8.17%6Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

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