Here Are 4 Can't-Miss Steps to Start Building Your Credit

Your credit history and credit score impact your finances in the United States. For this reason, it's essential to care about your credit. Those with minimal credit history could find it difficult to take out an affordable mortgage loan to buy their first home, or to buy a new car using an auto loan. If you're new to credit, you can take steps to establish credit for the first time. It's not too late to start building credit. We've outlined a few can't-miss steps to start building your credit so you can take positive strides that help your financial future.

1. Apply for a credit card

When used responsibly, credit cards can help build credit. If you have no credit history, applying for a secured credit card is likely the best choice. Unsecured credit cards can be more challenging to get approved for if you have zero credit history.

Secured credit cards require a cash deposit, usually equal to your credit limit. After making a deposit, you can use your card to make purchases. Making responsible spending and payment decisions when using your credit card can help you establish credit. To avoid expensive credit card interest charges, only use your credit card to make purchases you can afford to pay off in full.

Some secured credit cards allow cardholders to graduate to an unsecured credit card once they show they can manage their credit well. It's worth mentioning that some secured credit cards charge an annual fee. However, applying for a secured credit card with a $0 annual fee is possible. Check out our list of the best secured credit cards to learn more about card options.

2. Become an authorized user of a credit card

Another way to build credit is by becoming an authorized user. If a family member or partner is willing to add you as an authorized user on their credit card account, their account spending and payment history will appear on your credit report. As an authorized user, you'll receive a credit card and can make purchases with the card. However, the credit card account holder, not you, is responsible for making payments to the account.

Before asking a loved one to add you as an authorized user, consider whether they have good credit. If they make irresponsible decisions, such as paying their credit card bills late, their actions could harm your credit.

You'll also want to set clear expectations. You can work together to determine ground rules for how much you'll be allowed to spend and how you'll pay your share of the bill. Your loved one may decide to add you as an authorized user without giving you access to the card.

3. Get a credit-builder loan

For those without credit histories, credit-builder loans offer another way to establish credit. These loans can boost your credit score but function differently than traditional ones. With this kind of loan, you won't receive the money being lent to you until you pay the loan off.

It's worth noting that your monthly loan payments will include interest charges. For this reason, this solution can be an expensive way to establish credit. However, it may be worth exploring if you're looking to rebuild your credit or establish credit for the first time.

4. Take out a personal loan with a cosigner

Another option for those looking to build credit is to take out a personal loan with a cosigner. A cosigner is someone who agrees to take responsibility for the personal loan payments if you fail to pay them. It's not uncommon for individuals with little or no credit to need a cosigner to get approved for a personal loan.

If you have a trusted loved one who will agree to be a cosigner for you, this could be a strategy to consider to build credit. Before asking someone you trust to be a cosigner, be ready to show that you'll have the ability to afford the monthly loan payments. You should also review the interest rate and fees before considering a personal loan to know what extra costs to expect.

Stay on top of your payments

Whether you get a credit card or loan to build credit fast, staying on top of your payments is necessary to impact your credit positively. Making regular, on-time payments is the best strategy to build credit and improve your credit score.

Late or missed payments can not only make for a costly mistake due to late fees and other penalties, but delayed or missed payments can also negatively impact your credit score. Check out our free personal finances resources for additional tips to improve your financial situation.