If you’re looking for Easy Ways to Build Credit, you need to understand a few things first. Building credit and maintaining an excellent credit score is crucial for having a bright financial future and leading a ‘normal’ life.
Even if you have always paid using cash or checks, your expenses are bound to increase in the future and you will need a loan at some point of time in your life – be it for buying a high end computer, car or even a home.
In many cases, it is hard to rent an apartment if you have no or bad credit – landlords want to make sure that you can pay rent on time. Even employers aren’t keen on hiring people with no or bad credit!
In today’s world, life is much easier if you have a good credit score. However, building credit for the first time can be quite tricky and frustrating. Nobody will give you a loan since you have no credit history and you have no credit record because you have never taken a loan.
In order to have a FICO score, you need at least one account that has been active for over six months. Additionally, at least one creditor must report your activity to the credit bureaus in the past six months.
It all seems like a vicious circle! However, there is a way out…
Check out These Easy Ways To Build Credit From Scratch:
1) Apply for a secured credit card:
A secured credit card is one of the simplest and most effective approaches to building credit. When you apply for such a card, you make a security deposit upfront. The credit limit of the card is usually equal to the security deposit.
Banks risk nothing by lending you money since they can deduct the money from the deposit if you fail to make payments – hence, it is quite easy to obtain a secured credit card. Such a card works like any other normal credit card – you buy products/services, pay for them using your card and if you don’t pay your balance in full, you incur a certain interest.
A secured credit card is not meant to be used forever. You use it to build a good credit history and qualify for an unsecured credit card with better benefits and no upfront deposit. You get your deposit back when you close a secured credit card account.
Choose a credit card company with a low yearly fee and make sure that it reports your activity to the three credit bureaus, namely TransUnion, Equifax and Experian.
2) Apply for a credit-builder loan:
The sole purpose of such a loan is to build credit. You borrow a certain amount and the lender releases the amount only when the loan is repaid in full! In effect, it is like a saving program. Many banks (especially community banks) and credit unions offer such type of loan and report your history to the credit unions.
3) Get somebody to co-sign:
You can get a loan or an unsecured credit card if somebody is willing to co-sign along with you. However, the co-signer must have good credit, he/she will have to repay the money if you fail to do so. Who will agree to co-sign? Well, parents, close relatives and friends, boy/girlfriends and spouse are usually willing to co-sign. Give it a try!
4) Become an authorized user on somebody else’s credit card:
Please make sure that your activity as an authorized user is being reported to the bureaus. Legally, you are not required to make repayments on any purchases you make using the credit card – the primary card holder is obligated to pay the outstanding.
However, you might want to discuss the conditions beforehand with the primary holder. He/she might want you pay even though you are not legally required to. Becoming an authorized user on another person’s card is a fairly safe strategy – you will never be held liable for any outstanding debt.
If the primary user does something irresponsible (missed payments, reaching the credit limit etc), you can remove your name from the card and subsequently from the credit reports.
While you are building credit using the above mentioned ways, learn about checking your credit score and how it is calculated. Here is a quick crash course:
- Payment history is the most important factor in calculating FICO score, accounting for 35% of it. Always pay all bills on time.
- Amount owed is the second most important fact (30%). Try to reduce the amount of money you owe to lenders.
- Length of the credit history makes up 15% of the score. A longer history usually has a positive impact on score. Your average account age and age of the oldest account are taken into consideration.
- The type of credit accounts for 10%. You should have successfully managed different types of credit such as revolving credit (credit cards), instalment, mortgage etc.5) Recent credit applications contribute to 10% of the FICO score. Too many inquiries can lower credit score. However, the FICO software considers multiple inquiries (made within 15 to 45 days) as a single inquiry. Also, student, car and home loans are not featured in the report if they are less than thirty days old.
Anyways now that you know that, the next step is to work towards IMPROVING your credit. For that, I suggest you check out the article below about how an ‘Average California Housewife’ improved her credit by almost 200 points in a couple months. (Yes, this really did work for her & it can for you too).