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Breaking into the world of credit can be an intimidating process

In order to get a credit card, financial institutions want to see that you have good credit. How do you build a good credit history? Get a credit card. It can seem like a vicious cycle for teenagers and young adults, but there are options.

Why does credit history matter? Because if you ever want to borrow a large sum of money in your lifetime for items like homes or cars, you’ll need to prove that you’re trustworthy and able to pay that sum of money back. Plus, those with good credit pay significantly less in interest rates over the life of their loan. And who does not love to save money?

Don’t stress – here are some options if you’re looking to build credit.

Option #1 Convince someone to cosign on your loan.

This is the easiest way to open a loan or credit card. If you have a family member who already has a good credit history, there’s a strong chance that the financial institution will approve the loan.
What’s a cosigner? It’s basically a person who agrees to be responsible for the loan payments if for some reason you can’t pay the bills. Often this is a family member who trusts you to pay the loan and has the ability to pay if you can’t.

Option #2 Get a starter credit card.

A starter credit card is different from a regular credit card in that it offers a lower credit limit (many times under $500), sometimes features an annual fee, can charge higher interest rates, and often provides very limited rewards if any at all.

Many starter credit cards are actually secured credit cards. This means that the financial institution will want you to secure the credit line with an actual bank account. So if you’d like to be approved for a $500 credit line, you’ll need to have $500 in your bank or credit union account to cover that balance if you’re unable to make payments.
Once you have a credit card, make sure you making regular purchases and paying the bill on time every single month. Timely payments are the most important component of building your credit history.

Many times credit unions will be more likely to work with young members to establish credit than banks because of their “people helping people” philosophy. If you’re unable to find a bank willing to approve you for a loan or credit card, try your local credit union. They are committed to finding a financial solution that works for you.

Good luck!