Start building better credit now—you’ll thank yourself later

Building your credit from scratch might seem like hiking up a mountain. Don't fret—there are plenty of routes that can get you where you want to be. And once you’re on your way, you might find that the journey isn’t so bad after all.

Take charge of your charges

Whether you’re completely starting from square one or have a bit of credit history under your belt, “credit cards can be one of the best ways to build your credit, and, if you're responsible with them, they can help improve your credit score,” says Paramita Pal, Head of Product Management & External Acquisition for US Bankcard at TD.

When it comes to credit cards, you have options, says Pal. “If you are just starting out and trying to build credit, you can opt for a starter card. If you don’t have a FICO score yet, you can look at secured cards, and if you’re trying to build a balance and are looking for a low interest rate, there are a lot of cards that offer 0% APR for a period of time, which might be a good match for you.”

To start, you can apply for a traditional card and use it to pay for everyday expenses. Many banks and credit card companies have an online application process.

Building your credit from the ground up? Don’t stress out if you don’t qualify for a credit card just yet. There are good alternatives to get you started, like secured cards. “A secured card is often a stepping stone,” says Pal. “It functions like a traditional card, but you have to put down a security deposit to open an account.”

You can also be added as an authorized user, where a trusted friend or family member adds you to their credit card account. “This can help you build your credit history,” says Pal. An extra tip? Don’t forget to say thanks.

No matter the route you take, Pal offers some advice: “If you want to build good credit, use your cards regularly, and don’t forget to make your payments on time.”

Build credit just by paying your bills

Bills. Maybe not your favorite thing to pay each month, but a great tool for building credit. “Pay your bills on time, and, if possible, pay your bills in full,” says Pal. This can help boost your score.

“Credit card companies expect you to pay them back. If you only pay part of what you owe them, they are happy to keep giving you that loan, but nothing comes free. They will charge you interest, and that only benefits the credit card companies.” So, keeping up with your bills is the key to avoiding late fees and staying on top of your finances.

Worried about paying bills on time? “Set up autopay on your account, so you don’t miss them,” Pal recommends.

Look to your credit report

You can also reach out to one of the credit reporting agencies and add bills—such as phone, utility or rent—to your credit report. Normally, these bills only show up on your report if you don’t pay them on time. Adding them to your report is proactive and can help build your credit. Just remember to take care of them each month, so they don’t ding your credit.

Take a second look at your loans

Have any car loans, student loans or a mortgage? Making your installment loan payments on time adds some credit diversity into the mix. This can stamp some positive history on your credit report as you pay down your debt (a nice bonus).

If you’re struggling with your payments, “look at your spending pattern and put limits on yourself,” says Pal. Managing a budget can also keep your spending in check.

Consider credit-builder loans

Slow not really your speed? If you want to improve your credit quickly, specialty credit-builder loans are another option. Offered by credit unions and smaller banks, this process involves getting a savings account that holds the amount you’re borrowing. You can access the money when you’ve paid back the loan. Your lender should report your timely payments, which may help your score.

When it comes to getting your credit journey off to a good start, remember that you have options. And all of these options boil down to one thing: “All you have to do is show that you can manage your credit on a regular basis,” says Pal. Then, you'll be well on your way to a better financial future.

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This article is based on information available in November 2021. It is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.