10 Healthy Ways to Build Credit


Get a Secured Credit Card

A secured credit card is a wonderful way to get your feet wet in the world of credit. Regular credit cards are called "unsecured," because there's no collateral backing up the line of credit. With an unsecured credit card, the bank allows you to borrow up to your credit limit without any guarantee that the money will be repaid.

A secured credit card, on the other hand, is tied to collateral held in a bank account. In other words, your credit limit equals your checking account balance or another amount required by the card company -- although payments for purchases made with this card won't be drawn from your bank account. If you have $500 in the bank, then your credit limit for the card is $500. If you try to charge more than $500 on the secured card, the transaction simply won't go through.

The cool thing about secured credit cards is that you can use them as training wheels for an unsecured card. Most secured credit lenders -- credit unions are excellent choices -- will let you graduate to an unsecured credit card after 12 to 18 months on a secured account [source: Grant].

Be careful, though: Some secured credit cards carry higher interest rates and fees. Above all, make sure that the secured lender reports to all three major credit bureaus. That's the only way you'll build a healthy credit history.