If you ask how to start building your credit, you may come across credit cards as your first option. Many people advise taking out a card and using it for a few purchases each month.
Consistently charging small amounts to your first card and paying off the balance on time and in full each month is what helps build credit over time. You create a positive payment history and show you can manage a line of credit.
But while credit cards can help you develop a credit history, it’s too easy to charge more than you can afford and end up with a balance you struggle to repay. So what helps build credit without leaving you in debt?
How to start building your credit
There are plenty of options to explore that won’t leave you tempted to rack up debt that costs you money. Instead of just relying on credit cards, try one of these other ways to build credit instead.
Pay down your student loans
You can skip the plastic — instead, build your credit score and history by making payments on your student loans. Repaying your balances helps build credit in the same way using and paying off a credit card does.
This is debt you already have, so there’s no reason to take on more debt for the sake of building credit. As you create a positive payment history, your score should slowly increase over time.
Need help creating a repayment strategy? Consider the following resources so you can start knocking out your loan balances right away:
- Learn more about the debt avalanche and debt snowball repayment methods and choose the one that works best for you and your situation.
- Explore more than 70 student loan repayment plans.
- See what federal loan repayment programs you qualify for, and decide if one will help you pay down your debt.
- Try this strategy for the fastest way to pay down your debt and save money on interest payments.
Obviously, paying off your student debt is important to do regardless of what you want to achieve with your credit. But it’s nice to know that your efforts to repay your school debt come with the added benefit of potentially boosting your score since you demonstrate your financial responsibility by paying down your loans.
Become an authorized user
If you’re ready to learn how to start building your credit, you can also become an authorized user on someone else’s line of credit. This could be one of the best ways to build your own positive history if you have a friend or family member (like a parent) that can help.
Becoming an authorized user allows you to build your own credit history without actually having your own credit card. But be careful: If that person fails to make their own payments, your credit will suffer.
Therese R. Nicklas, CFP, explains how she used this method to help her children build their credit. Because she had excellent credit and an active credit card, she asked her credit card company to add one of her children to her account as a card holder.
When the credit card arrived in the mail, she destroyed it — and says to never actually give the card to the person you’re trying to help build credit!
“What this does is allow a minor or young adult to piggyback on your great credit,” Nicklas explains. “They start building credit without ever borrowing.”
She strongly recommends the parent, family member, or even financial advisor offer a lesson in credit management and the importance of having and maintaining great credit to the individual you want to help build credit.
“This is a great opportunity to take advantage of a teachable moment,” she says. “When I have clients with pre-college age kids, I offer a credit clinic to them before they leave home. I teach them the responsibility associated with borrowing and we talk about student loans.”
You can approach your parent or other trusted individual about helping you build credit with this strategy. Make sure you each know your responsibility in the agreement before signing on as an authorized user.
Report your rent to credit bureaus
Other ways to build credit include finding opportunities to show credit reporting agencies that you can manage payments on money you owe. Your rent is a great example of this.
The only problem? Your landlord or the property manager of your rental home must report your history of on-time rent payments to credit bureaus.
This is added work for them and not something that all landlords do automatically. You can ask your landlord if this is an option, but if the answer is no, don’t worry — some services offer solutions specifically for this problem.
Rental Kharma is one such service. They’ll report your payment activity on your rent and some other bills so you can get credit — no pun intended — for your financial responsibility.
One of the best features of the service is that Rental Kharma can backdate your payment history up to 2 years. That means you don’t have to start from scratch, and credit bureaus can immediately see you’ve managed your bills over time. This is what helps build credit faster.
There is a one-time charge of $25 to get started and a $7 monthly service fee after that. Although other ways to build credit don’t necessarily cost you money, this is still a better way to go than taking on additional debt.
You don’t need to use a credit card to build your credit. Try one of these options if you want to explore your alternatives. With time and consistent effort taking the right actions, you’ll create a positive credit history and a good credit score.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
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 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% 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 email@example.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
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. 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. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
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.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.97%1||Undergrad & Graduate|
|2.47% – 6.99%3||Undergrad & Graduate|
|2.68% – 8.77%4||Undergrad & Graduate|
|3.24% – 6.66%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.01% – 9.75%6||Undergrad & Graduate|