If you do not have a credit history, it can be difficult to find a way to build credit. It’s a catch-22 situation where to get approved for a credit card or a loan, you need to have already built credit. So how do you start? There are a few options available for those looking to build their credit from the ground up.
Avenues to Establish Credit
One path you can consider is opening a secured credit card. A secured credit card is backed up with a cash deposit. So, if you make a deposit of $1000, your credit limit will be $1000. Just like any other credit card, you will use it to make purchases, make payments before on the due date, and accrue interest if you do not pay down your balance. When you close the account, you will get your deposit back.
You can also apply for a credit-builder loan. The way this works is after you have been approved by the lender, the money you borrow is put into a savings account that you can’t touch. After you have paid off the loan, the lender will send a good report to the credit bureaus.
Another type of loan that is available is a secured installment loan. If you already have money in the bank, you can ask that financial institution to use that as collateral. Once they have agreed, are not allowed to touch those funds until you have repaid the loan. It is also possible to unfreeze funds in increments as you pay off the loan.
If you have good spending habits, then you could try becoming an authorized user on someone else’s credit card. Even though you aren’t legally obligated to pay your share, typically the person that is allowing you to become an authorized user will want to establish the ground rules for spending and payment. Once you have agreed to these terms, make sure to stick with them. The last thing you want to do is get into a tough situation that can possibly ruin a relationship with a close friend or a family member.
If none of the above options interest you, you can also get a co-signer. You can get a loan or an unsecured credit card this way. However, you should make sure the co-singer understands that he or she is legally obligated to pay the outstanding balance if you do not.
Hot to Get a Good Score
Many of the things that create good scores are no brainers. These things include making payments on time or by the due date and paying down any high balances. However, another thing you should consider is how much credit you are utilizing. Typically, keeping your credit lines below 30% of the total amount available to you is a good rule of thumb. Naturally, you will probably go above this, but make sure to pay it back down as soon as possible to ensure that this doesn’t hurt your scor