For many young people today, moving out and renting their first apartment is a big step. But with high housing costs, it’s not always easy. A recent study found that nearly a third of Gen Z adults still live with their parents because they can’t afford their place. For those renting, over a quarter say it’s becoming too expensive to keep up.
That said, Building a good credit score can make a huge difference. It can help you secure an apartment and manage rental costs more effectively. Here are five simple ways to start building your credit today, making it easier to move out when you’re ready.
Get a Secured Credit Card
One of the simplest ways for young people to build their credit is by getting a secured credit card. This type of card differs from regular credit cards because it requires you to put down a cash deposit upfront. This deposit usually becomes your credit limit. For example, if you deposit $500, you can spend up to $500.
Secured credit cards are easier to get if you’re just starting and have no credit history. They work well for building credit because they show you can borrow and pay it back on time.
Using a secured card wisely involves making small, manageable purchases and paying off the balance in full each month. This practice helps avoid costly interest payments and builds your credit history sustainably.
As you reach at least a 775 credit score, you’ll increase your chances of qualifying for other types of credit, including the potential to rent your first apartment more easily.
Become an Authorized User
Becoming an authorized user on someone else’s credit card is an effective way to build your credit. In this arrangement, you can use their card as your own, but the primary cardholder is responsible for paying the bill. This setup allows you to benefit from the primary cardholder’s good credit history, which can be a significant advantage.
For this arrangement to work effectively, you must uphold a high standard of trust and honesty as the authorized user. The primary cardholder is placing their credit score partially in your hands.
If you make irresponsible choices, such as overspending or missing payments, your credit scores could be harmed. Before becoming an authorized user, make sure the credit card company reports your activities to the credit bureaus, as this will ensure your responsible usage positively affects your credit history.
Moreover, agreeing on clear terms with the primary cardholder about how you will use the card is essential to avoid potential stress or confusion. Whether it’s deciding not to use the card at all or setting a small, specific spending limit each month, these agreements are essential. Being transparent and responsible in your spending ensures the arrangement benefits both parties and helps build your credit effectively.
Consider a Credit-Builder Loan
Unlike typical loans, you don’t receive the loan amount upfront. Instead, the money is placed in an FDIC-insured Certificate of Deposit (CD), ensuring your money is safe. Here’s how it works: you make regular payments into this CD over a set period, which are reported to the credit bureaus.
Because the loan amount is secured in the CD, the risk to the lender is low, which makes it easier for you to qualify for one of these loans. Like any other loan, you’ll make scheduled payments throughout the loan term. These payments are an excellent way to show you can handle debt responsibly.
You can access the money in the CD minus any fees and interest at the end of the loan term. Essentially, you’ve saved money while building your credit history. It’s like a forced savings program that helps establish a good credit score. It benefits anyone who needs to show reliable financial behavior without the temptation or risk of spending the funds immediately.
Report Regular Bills
For many, everyday expenses such as utility bills, phone plans, and streaming subscriptions are part of regular life management. However, these payments typically don’t appear on your credit report, so they don’t automatically contribute to your credit score. Recently, services like UltraFICO, StellarFi, and Experian Boost have changed this by allowing you to count these regular payments towards your credit history.
These services link to your bank accounts to verify that you make these payments consistently and on time. Once verified, they report this payment history to the credit bureaus. This additional data can positively impact your credit score, especially if you have a sparse credit history.
Using these services to report your payments can offer a dual benefit. First, it helps build or improve your credit score by showing credit bureaus a longer, more consistent payment history. Second, it paints a broader and more accurate picture of your financial reliability, which can be particularly useful when applying for loans or renting an apartment.
Monitor and Understand Your Credit Score
Keeping an eye on your credit score is essential for good financial health. It’s not just about knowing your score but understanding what’s behind it.
Your credit report includes details like how often you make timely payments and how much of your available credit you use. Regularly checking this helps you spot any mistakes that might drag your score down or catch signs of identity theft early.
Many websites offer free credit reports and scores. These show you your current score and tell you what’s affecting it, whether it’s carrying a high credit card balance, applying for new credit, or something else. Spotting these issues helps you take action, like fixing errors or improving your spending habits.
Better credit often means better terms, like lower interest rates, which can save you money in the long run.
Conclusion
Don’t wait to take control of your credit; start today to build a solid foundation to serve you well. Remember, every small step you take now is a leap toward achieving your dream of independence and stability. Ready to build your credit and unlock new possibilities? Begin with these steps and watch how your financial opportunities expand.
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