Your credit is your reputation for repaying your debts, which allows you to spread payments over time rather than paying for something up front because the lender can trust you to pay it back. Your credit builds slowly so it is beneficial to start accumulating a positive credit history as soon as possible so when you need to borrow a large amount of money, such as a car loan or home mortgage, lenders will see your positive credit history and be willing to loan you the money.
Check Your Credit Report
Even if you have never had credit before, you may still have a credit report because of credit bureau errors or identity theft. If this is the case, you should contact the credit bureau and challenge all of the incorrect information on your credit report. You can order a free credit report each year from the three main credit bureaus: Experian, Equifax and TransUnion (See resources).
Applying for Credit
When you apply for a credit card, many cards will ask if you have a checking account, savings account or both before extending you credit so you have set up these accounts in advance. According to MSN Money, one of the easiest times to get a credit card is when you are in college because credit card companies are willing to take more risks because of the potential for your parents to pay your bills if needed and your increased earning potential in the future. If you cannot get a regular credit card, consider a secured card. When looking for a secured credit card, choose one that has a low or no annual fee, can be changed to a regular credit card in the next year or two and will report your payments to all three credit bureaus. You can also consider asking someone with established credit to put your name on their credit card because you will receive credit when the card is paid on time. However, you become liable for the debt and any late or missed payments will also be recorded.
Building Your Credit
Use your credit regularly but limit the amounts that you spend. You must have at least half a year of credit information before you can have a credit score calculated. MSN Money recommends that you use no more than 30 percent of your credit limit on your credit cards. Also make sure that you make your payments on time because 35 percent of your credit score is based on your payment history. You do not have to carry a balance and pay interest on your credit card to establish credit so it is best to only charge what you can pay off each month.