Every year there are millions of consumers who start building credit for the first time. I often see many consumers making the same mistakes. If I would have a microphone to shout out to all people building credit, here is what I would tell them.
Many people jump for their first card to a card that offers a mega signup bonus or a high end card. The issue? These cards will mostly not approve beginners and you will only be hurt for trying. Don’t jump too high too fast. If you are still a beginner then stick to a boring beginner card like the Capital One Journey or Discover It. And only after about 12 months of history will you be able to jump to the more exciting cards. You can check out a list of starter cards here.
There’s a common way to jump-start credit through being added as an authorized user on someone else’s credit card. This is actually a cool way to get your credit score soaring in just a matter of days. But don’t be fooled into thinking that because your score is so high you can apply for any credit card. Banks can see that the way your score was built so high is through authorized users and will most likely not approve you for an advanced credit card. As we pointed out in mistake number one, stick to a starter card.
Piggybacking credit is having a third party, a creditworthy individual, add you to their credit card as an authorized user. This will allow you to receive the credit b...
There are many fintech apps that claim to help you build credit. Many people start out with these apps but later regret it. The issues? They charge monthly fees, don’t report to all credit bureaus, don’t give you back the security deposit unless you close the account, stupid strings attached, and more. Stick with the conventional way of building credit which is first starting out with a starter credit card (or secured credit card) and building from there.
Congratulations! You turned 18 and you decided you’re gonna do this. You’re going to start building credit like a boss! One teeny problem- you know you’re...
As your first credit card, don’t choose a card with an annual fee with no downgrade option. The issue? Since it’s not recommended to close one of your oldest credit cards, taking a card with an annual fee does not make sense as down the road, you might not want to pay the annual fee but will be afraid to close the card in order for it not to affect your credit.
If you choose to start building credit using a secured credit card then make sure the secured card you choose has an option to mature to a regular credit card. If the card does not have a maturity option then your only option for getting back the security deposit will be by closing the card. But you will not want to close the card as it is your oldest card,and you’ll be stuck in that same rut described above. But, if you choose a card that has a maturity option, then once the card matures you get back your deposit and the account stays open. Here is a list of secured cards that have a maturity option.
When choosing your first few cards don’t take them all by the same bank. Split them up between different banks in order to protect your credit. Like that, just in case one bank shuts you down at any time throughout life, you will not lose all your oldest credit cards at once. It’s never good to keep all your eggs in the same basket.