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How to Establish Credit

Lay the foundation for good credit

There are a lot of benefits to having good credit. Lenders aren’t the only ones who look at your credit and credit history — employers, insurance companies, landlords, cell phone providers, and more can reference your credit history when they make decisions about you. That’s why having good credit may help you with everything from getting a job to getting a new cell phone service.

To build a credit history, you first must know which activities appear on your credit report. A credit report documents your credit activity, and keeps a record of your credit accounts and how responsibly you have paid them over time.

Activities that establish credit

  • Acquiring a secured or unsecured credit card in your name, for example, Visa®, MasterCard®, American Express®, or Discover®
  • Acquiring gas or retailer cards, which can be easier to qualify for than a bank card
  • Getting a loan (such as a student loan or an auto loan) in your name, with or without a cosigner or co-applicant
  • Becoming an authorized user on a trusted person’s account (Wells Fargo reports this to the credit bureaus, but not all lenders do, so check with the card issuer)

Help build a good financial foundation

Remember that even activities that don’t directly impact your credit report can still demonstrate your financial responsibility and help you qualify for new credit. After all, lenders look at all of your financial decisions, along with your credit history, to make decisions.

  • Paying utility, cell phone, or other bills that are in your name
  • Opening a checking account and using your debit card
  • Building a savings account

Even though these activities don’t establish credit and usually don’t appear on a credit report, late payments or overdrafts may appear and can negatively impact your credit score.

To find out more about credit, explore credit basics or learn about credit reports and credit scores.

Now that you know which activities establish credit history, here are some next steps to start building your credit:

  • Become an authorized user. You might benefit from someone else’s good credit by becoming an authorized user on a trusted person’s credit card. Keep in mind that not all lenders report authorized user accounts to the credit bureaus, so make sure to find out if your credit card company does. 
  • Consider a cosigner or co-applicant. Applying with a cosigner or co-applicant can help you qualify or acquire better credit terms, but remember that your cosigner or co-applicant also takes responsibility for payment. That means the credit history will be reflected on both of your credit reports. 
  • Apply for a college credit card. If you’re a student, look for credit cards for college students. They may have easier qualification requirements, and may help you build credit while you’re in school. 
    Wells Fargo Cash Back College Visa® card
  • Get a secured card. With a  secured card, you can start building a solid credit history. Simply deposit an amount into a collateral account and your credit limit will usually equal that amount. Keep in mind that the money in your collateral account won’t be available until you’ve repaid the balance in full. Wells Fargo offers secured cards starting at $300.
    Wells Fargo Secured Visa® card
  • Apply for a secured loan . With a secured loan, you use your savings account as collateral. Plus, a secured loan can help you continue building your savings and take care of your immediate expenses. Keep in mind that the money in your collateral account won’t be available until you’ve repaid the loan in full. 
    Wells Fargo Time Account (CD)/Savings Secured Loan
  • Consider gas and retailer credit cards. Gas and retailer credit cards may also help establish credit, and they might be easier to acquire than bank-issued credit cards. Be aware that they may have different terms than other cards, so make sure to review them carefully and make your payments on time.     

 A valuable relationship 

A relationship with Wells Fargo has benefits.  By opening a checking or savings account and demonstrating good financial habits now, you may benefit from better rates, approval, and credit options available to customers.

Opening a credit account is only the first step toward building credit. Now, it’s time to focus on implementing good credit habits. Over time, managing your accounts responsibly will pay off by helping you build a solid credit history. Here are a few good habits to implement:

  • Charge what you can afford. Remember that building good credit depends on your ability to pay back what you borrow. So, start small with a loan or line of credit that you can comfortably pay every month along with your other obligations. If you have a credit card, consider charging only what you can afford, and pay it in full every month. This may also keep your debt-to-income ratio low.
  • Pay your bills on time. Payment history accounts for approximately 35% of your credit score, and the first missed payment has the largest negative impact on your credit score. By making a timely payment every month, you’re showing financial responsibility.
    Online Banking with Wells Fargo online bill pay
  • Keep your balances low. Keep in mind, approximately 30% of your credit score is based on the percentage of your available credit that you use.  Maxing out your credit card or lines of credit will negatively impact your credit score. A good general rule is not to exceed 30% of your available credit line. One of the best ways to manage your account balances is to stick to your personal budget regardless of your credit limit.  

Remember, a good credit history doesn’t happen overnight. Explore other ways you can continue to build and strengthen your credit.
Good Credit Habits

Cosigner or co-applicant

A cosigner is someone who lends their credit to help the primary borrower qualify for a loan and is responsible for repayment if the primary borrower fails to make payments.  A co-applicant applies jointly with the primary borrower and shares responsibility for the repayment of the loan.  Any new debt taken will appear on both the primary borrower and the cosigner or co-applicant’s credit report and may impact their credit score.

Debt-to-income (DTI) ratio

Your debt-to-income ratio is the percentage of your monthly income that goes toward paying down debts and other monthly expenses like rent.