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At first glance, building credit can seem like a challenge. You may wonder how you can get the credit you need to build credit when you have little or negative credit history. Don’t get discouraged, though; there are many ways you can build, rebuild or improve your credit.

The more you practice good credit habits and maintain a healthy score, the more your credit history will improve—helping you be prepared for the future financing you may need. Here’s how to get started.

Build Your Credit

  • Apply for a secured credit card. A secured credit card works like any other credit card, but it’s guaranteed by a cash deposit. For example, if you deposit $300, that’s your credit limit. Making on-time payments and keeping a low balance helps you build credit.
  • Ask a family member to add you as an authorized user on their credit card. You’ll receive your own card, but the primary card owner sets the limit on how much you can charge. It can benefit both of you: you’ll learn how to manage credit, and the account holder can earn rewards on your purchases. Just keep in mind that if the primary cardholder fails to make a payment, it could end up on your credit report.
  • Manage loans responsibly. Student loans and most auto loans are reported to credit agencies, meaning borrowing for education and large purchases like a car will help build your credit if you regularly make your payments on time. A history of on-time payment shows you can responsibly manage your credit. Have a co-signer on a loan, if you aren’t able to qualify on your own.
  • Take advantage of positive rent payment history. If you reliably pay your rent on time, you've shown good money management habits. Credit reporting agencies now include positive rent payment history on credit reports. To have your rent payment history reported, you can enroll in a rent-reporting service. Sign up through your property management company or choose your own platform.

Keep Up Good Credit Habits

  • Make payments on time, all the time. Pay credit accounts, utility bills and other payments on time. Consider using calendar reminders and tools like automatic bill pay and money transfers. On-time payments show that you’re creditworthy.
  • Use different types of accounts. Your credit score improves when you responsibly use more than one type of credit account, including installment loans—like an auto loan. Be mindful of how many accounts you open, though, as too many inquiries into your credit can negatively affect your credit score.
  • Use your credit card regularly but keep your credit utilization low. Utilization is the percentage of your credit that you use. Or, in other words, the percent of your available credit you’ve borrowed. Try not to use more than 30% of your available credit. So, if you have a $1,000 credit limit, try to keep your balance under $300.
  • Keep current credit card accounts open. Unless you have a reason to close an account, consider keeping it open. While you may not be using it, keeping an unused account open increases available credit.

Get Your Credit Back on Track

  • Know the impact. Dings on your credit, or any negative activity that affects your credit score, can make a long-term impact. Generally, payments late by 30 days or more, tax liens, exceeding a credit card limit and bankruptcy affect scores for an extended period of time.
  • Check your credit report for errors and know your credit score. Your credit score is a snapshot of your credit history and shows lenders how responsible you may be as a borrower. Your credit report outlines your credit activity, your credit history and the status of your credit accounts. It’s important to check your credit report every year for unusual activity and dispute errors as you build your credit. An error or identity theft gone unnoticed can ruin the credit history you’ve worked to build.
  • Contact creditors directly. Sometimes your financial situation changes unexpectedly. If you contact creditors directly, they’ll often work with you to create a payment plan.
  • Create a budget or use our budget worksheet comparing your income and your expenses. The best way to live within your budget and avoid bad credit is to catch problems early. With a budget, you can see where you need to change course to get back on track quickly.

Navy Federal Credit Union offers a variety of tools and resources to help you establish and improve credit. Contact us or learn more about how we can guide you to building and maintaining great credit.

This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.