Establishing good credit is an essential step for young adults who are looking to purchase a car, a home and achieve other milestones. Additionally, many employers now review applicants’ credit histories as part of the hiring process. Establishing and maintaining good credit is vital to future success, but it can also be challenging. Here are five ways young adults can establish good credit.
Start with a Clean Slate
If you’ve never had credit before, you won’t even have a credit report yet, right? Wrong. A 2011 Carnegie Mellon study of 40,000 children revealed kids under 18 were twice as likely as their parents to be victims of identity theft. So the first step when trying to establish credit is to check with each of the three major credit bureaus – Experian, Equifax and TransUnion – to be sure there are no open files using your name and Social Security number. If you find someone has stolen your identity and used it to gain credit, first, file a police report, then report the theft to the Federal Trade Commission by calling 877-ID-THEFT (438-4338).
Open a Bank Account
Although most checking and savings account information is not part of your credit report, virtually all credit applications will ask if you have them. Opening these accounts and maintaining a healthy balance in each helps to establish you as a responsible, potentially credit-worthy individual. And while positive bank account information doesn’t show up on your credit report, negative information does.
Get a Secured Credit Card
Most credit cards are unsecured, meaning you don’t have to offer any collateral to secure the line of credit. Secure credit cards, however, are linked directly to collateral available in your bank account. Your credit limit won’t exceed the available balance in your account. It’s a good way to start using credit responsibly, without the temptation to overspend that can happen with a high credit limit.
Pay Your Bills on Time
The single most important thing you can do when establishing credit is to pay your bills on time. Every single one. No excpetions, no excuses. Even one late or missed payment can cause your score to drop and stay on your credit report for years. That’s why it’s important to ease into using credit and not take on more than you can afford.
Get and Keep a Steady Job
Your employment history is one of the many factors lenders take into account when deciding whether or not to lend you money. A record of steady employment with regular salary increases indicates a level of stability, not to mention the ability to pay back the money creditors allow you to borrow.