Learning how to build credit can be difficult, but through opening a secured credit card, becoming an authorized user on someone else’s card, and taking out a credit-builder loan, you can be on your way to building a great credit history and a brighter financial future. First start by learning what your current credit score is:
Ways to Build Your Credit
Just like getting your first job, building credit for the first time can be a bit tricky if you don’t have prior experience to back you up. But developing a line of credit will open you up to a whole new world of financial opportunities, and it will loosen up some financial restrictions you may have felt before. With good credit, you can get easy access to loans, high-end credit cards, and many other financial benefits, and simpler things like renting a house or apartment will become easier. But how do you establish credit from scratch? It sounds complicated, but we’re here to tell you how to build credit from the ground up.
Establishing a Line of Credit
One of the easiest and most traditional ways of establishing a line of credit for the first time is through getting a secured credit card. A secured credit card is one that requires a cash deposit when it’s being opened. Typically, the deposit that will be required of you will be equivalent to the spending limit on your card, and your deposit will be returned when you close the account. It’s likely that a credit card provider will approve your application for a secured credit card even if you don’t have a credit history. This is because the deposit that you pay eliminates some of the risks on the lender’s part.
Once you acquire a secured credit card, it’s imperative that you make monthly payments on time. On-time payments contribute significantly to your credit score, so making at least the minimum payment each month and not missing any monthly payments is a sure-fire way to quickly grow your credit.
Here, you can compare some of the top lenders of unsecured credit cards.
Build Credit with an Unsecured Credit Card
Still wondering how to build credit? Is an unsecured credit card not right for you? Another way to bolster your credit score, especially if you don’t have prior credit history, is to become an authorized user on someone else’s card. When you become an authorized user on a credit card, you have the ability to use that card, but the responsibility of payment does not fall on you. However, the payment details of that card contribute to your credit score. This means that if the owner of the card pays on time every month, your credit score benefits! However, bear in mind that the adverse is also true — if the card’s owner is delinquent on his or her payments, your credit will also suffer. So if you decide to go this route, it’s important that the person who owns the card you become an authorized user on is someone you trust to be responsible enough with payments. Before applying for a credit card, check what your credit score is:
If you’re still wondering how to build credit, getting a credit-builder loan is another option that you can take advantage of. A credit-builder loan is designed specifically for people who have little or no credit history and are looking to build credit, and many people take advantage of this opportunity. Although you won’t need credit history to access a credit-builder loan, you’ll need to prove to the lender that you have an income that can sustain payments. A credit-builder loan works by putting the money that you borrow — usually a sum between $500 and $1,500 — into a bank account that you won’t be able to access until the loan has been paid off. In this way, it’s almost like a savings account — at the end of the loan term, you get access to your funds, and you will have developed a line of credit due to the fact that you would have been making monthly payments!
So, we’ve shown you three ways how to build credit, starting from nothing. All it takes is time, dedication, and a willingness to build a brighter financial future. Stay on top of your credit health by monitoring your credit regularly.