When applying for car loans and other credit, the decision to approve your application is largely based on your credit score. The problem is, young people may not have this number, as they have never held any credit in their name. While it is great that they have no debt, they are also not doing themselves any favors, as no credit history can be just as effective as bad credit history when it comes to borrowing money.
The solution to this problem is to apply for a credit card to put yourself on the financial radar. It can be from a bank or even a department store – but watch out. Because you have no history, interest rates may be high, so make smart purchasing decisions. Only open one or two accounts, no more, as several lines of credit could hurt your score.
Borrowers also have the option of taking out a secured credit card, which involves a down payment from the consumer, in which they will essentially borrow their own money. For example, if you invest $500 in secured credit, you will have a $500 limit on that card.
Use these accounts responsibly as you build up a credit history. Make at least one small purchase each month and pay the balance in full before the due date to create a sparkling credit score.