Build your credit history may seem difficult for young people. In order to borrow money, for example for a personal loan or to buy a car/house, you need to have a good credit history. To have a good credit score, you need to have a credit history. And the longer you’ve had it, the better. However as a young adult starting out in your career, you don’t have a credit history!!!!! It could drive one crazy! But we still have ways to start building your credit history. Here are some tips.
1 – Apply for a secured credit card or student credit card.
First, a secured credit card works exactly the same way as a regular credit card. The main difference is that it requires you to deposit a certain amount of money on your card before you use it. Most of the time, this will be the same amount as your approved credit limit. For example, if your credit limit is $1000, you will need to deposit $1000 on your card before you can start using it. Make sure your card issuer sends credit reports to Equifax and Transunion or the card will be useless! If you don’t pay the balance in full each month, you will of course have to pay interest on top of that.
Many issuers have cards specifically designed for students. Most of them will require proof that you are enrolled at your educational institution. The amount of credit granted is usually low. That is the first and easiest step to build your credit history!
2 – To build your credit history, apply for a secured personal loan
The creditor takes one of your assets as collateral. If for some reason you don’t pay back your loan, they may consider taking a garanty against your loan. For example, your car, the loan amount on your life insurance premium, the money in your bank account/TFSA/RRSP, etc…, may be considered as collateral. The most common secured loans are guaranteed loans, loans on securities and pawnbroking loans. For more information on personal loans, click here.
As with credit cards, make sure your lender sends reports to Equifax and Transunion.
If you’re in a tight financial spot, you can still rebuild or build your credit history……
3 – Apply to be an authorized user on someone else’s credit card
In order to help their children start building their credit history, many parents will ask their credit card provider for a 2nd card linked to their account. That second credit card is in their child’s name. The young adult becomes the joint holder of the credit card. The primary cardholder is responsible for the payments. Be careful with that! The credit report will also be reflected in the name of the authorized user. In other words, you pay bad, your parent will also get a bad credit review. If your parents do not have a credit card, make sure you “partner” with someone you trust and who has a good credit history.
4 – Get a personal loan with a co-signer
A co-signer is someone who agrees to be legally responsible for paying your debt if you don’t pay back your loan according to the rules of the contract you signed. Again, your parents or someone you trust will sign the contract for a loan with you. But there is definitely an advantage to having a co-signer because you can get a lower interest rate and access to a larger amount!
As mentioned before, in the case of a personal loan with a co-signer, it is very important to realize that if you miss a payment, it will not only stain your credit report, but also that of your co-signer! So don’t take this commitment lightly!
Building a credit history takes time, even years. So don’t expect things to change significantly within a year. Over the months, responsible behavior towards your creditors will guarantee a positive credit history.
Once you have established a credit history, you have to maintain it. You make sure this happens not only by making sure you continue to pay your creditors, but also by checking your credit report for errors. Make sure that the information submitted to Equifax and Transunion is accurate and complete.
By following these tips, you will build your credit history that will allow you to achieve many of your dreams! Apply here for a loan with Credit2go, or for a credit repair.