Having a good credit score is important when looking for a job or shopping for a new loan. People who have never had to obtain credit before, however, are often surprised to find how hard it is to establish themselves a good credit risk to banks and other lenders. Fortunately, there are a lot of ways to establish good credit without having to spend a lot of money.
Start by obtaining services with revolving payments. The most common way to do this is to establish utilities in your name. Since you do not have a long credit history, expect to need pay a deposit for each of these services. Making these payments in full and on time will demonstrate that you can pay bills responsibly, and will enable you to get small loans.
Next, open up a small credit card or loan in your name. Typically, a bank will not give someone with a short credit history a very high credit limit, but getting a credit card with a low limit will help to improve you debt held to credit extended ratio, thereby making you eligible for bigger lines of credit. Note that you do not need to carry a balance on the card in order to establish credit. In fact, since the credit bureaus look at the amount of credit extended to you versus the amount that you owe, keeping balances on your credit cards as low as possible is ideal.
After holding a credit card for a while, ask for the credit limit to be increased or apply for another card. After you have shown that you can make payments on time, you might be ready for a larger loan, such as one for a car. Because you will still have a short credit history and a low amount of prior credit extended to you, it will be difficult to get the best rates on auto loans. For this reason, pick a cheap vehicle and pay the loan off as quickly as possible. The large amount of the loan will improve your score, and you will not have to pay high interest rates for a long time.
Continue to apply for credit and make on time payments, and within a few years you will have established yourself as an excellent credit risk with many banks and lenders. Also remember not to co-sign on any loans, as someone else’s bad credit can become associated with yours in these types of contracts.