3 Ways to Build Your Credit
I am 22 years old and I have built up a credit score above 750 with just one credit card and some basic spending rules.
A credit score is the number that tells banks, employers, and lenders how reliable you are when it comes to paying back money that you borrow. The number ranges from 300-850 (with a “good” credit score being somewhere around 690). And this number is SUPER helpful when it comes to borrowing large amounts of money (think mortgage or car loan).
The very best time to start building credit is right away! But the younger the better! Time is on your side when it comes to credit building so starting as early as you can is key. The easiest way to build credit is to get a credit card. The youngest you can qualify for a credit card in Canada is 19. Usually you can qualify for a student credit card or a low-limit credit card right away and start building your credit.
I think more young people should understand credit, credit cards, and credit scores so they can learn to build it while they are young! But even if you aren’t just starting out, it’s important to know how to keep building positive credit. I have put together my top three tips on how to build credit with a few basic spending rules.
Pay Your Credit Card After Every Use
Every time I spend money on my credit card, I go home and pay it off right away. This is not only a smart budgeting tool (you can’t spend money you don’t have) but it also means that you never miss a payment. The key to this is to do it consistently. Make it a daily habit! This means that I have to save up to buy big purchases – I can’t just put it on my credit card and worry about it later!
Use A Small Percentage of Your Credit
I tend to just pay my bills on my credit card (which you can set up to automatically come off your card!) and keep most of my spending on my debit card (another good way to only spend money you already have). This way, I am only spending a small percentage of my available credit. I have $2000 in available credit on my card but I usually only spend $20-$80 at a time (because I pay it off at the end of each day). Using a small amount of your credit helps build up your score.
Apply for Credit You Don’t Actually Need
Last week I got a $10,000 line of credit at my bank and it’s not because I am making a big purchase anytime soon. I have been trying to think of more ways to build my credit (I am applying for another credit card soon) and one strategy that came up in one of my conversations with my financial advisor was that I could get a line of credit (LOC) which adds another “line” to my credit score (the more credit lines – like a credit card or LOC – that are under my name and are consistently paid off, the better).
So although I don’t need the LOC for anything at the moment, getting it now (even with the one-time fee of $75) while I am young and have a good score, will not only help show that I have positive credit, it is also a good thing to have in case of emergencies. ALSO.. because I qualified for it with a good score, the interest rate is lower than the standard credit card rate (18-19%) which means if I DID want to buy something large and expensive, I could pay less interest if I used my LOC (which saves me money!)
And those are the three strategies I have used to build up my credit score for the past 4 years. My extra tip is to know yourself, and challenge yourself. Know yourself meaning, don’t get another credit card if you are already in debt on your last one! But also push yourself to take the steps to build up your credit – even if it’s tough!
If you had any troubles understanding anything I mentioned – please send me a note at firstname.lastname@example.org — I LOVE talking about saving & budgeting & all things personal finance.