Tips For Building Your Credit Over Time

Credit Score Building

Having a credit history is extremely important. When you want to make a large purchase, often times it will take getting a loan from somewhere in order to make the purchase that you desire. From borrowing money to buy a car, to getting a store credit account to purchase furniture, or even getting a mortgage to purchase your first home, your credit score is going to come into play.

One of the problems many people run into is that they currently do not have any credit. When you do not have any credit it can be almost as bad as having a poor credit history. It can be difficult to qualify for a credit card, loan, or even a rental property if you do not have a credit history.

The question becomes, how are you supposed to build up your credit if you cannot get anyone to give you credit in the first place?

Denied Credit

Patience Is Key When It Comes To Building Credit

When you do not have any type of credit, it can seem like a lot of work trying to get up to a good score. This is one of the most difficult thing about credit scores. While it takes no real time at all for your score to go down, it can take a really long time to build your score back up.

When you get your first type of credit, perhaps an authorized user status or a student loan, you will begin building your credit history. However, you will not instantly be given a credit score. This is why it can be tough to qualify for a good credit card.

There are two prominent credit scores that are used by the majority of lenders. These are the FICO credit score, which is the most popular, and the VantageScore, which is gaining in popularity.

FICO Scores And VantageScore

In order to get a FICO score you will need to have at least one account that you have had open for a minimum of six months. You will also need to have at least one creditor that reports your payment activity to a credit reporting agency within the past six months.

It is possible to generate a score more quickly through VantageScore, which is FICO’s largest competitor. The problem is that most creditors look at a FICO score, so generating a Vantage Score can be useful, but it may not be very helpful overall.

FICO Main Rival

While building credit may seem almost impossible, there are several tools that can be used in order to help you establish a credit history so that you can qualify for the loans that you need and that you want.

Some of these tools include credit builder loans, secured credit cards, co-signed loans, co-signed credit cards, or having authorized user status on someone else’s credit card.

Whether you choose one or more of these options, make sure that you use these tools in a way that will lead to you obtaining a good credit score.

Tips for Establishing a Credit History

If you are trying to establish a credit score from the beginning, you are going to likely have to start out with a secured credit card. Secured credit card are backed by a cash deposit that you make into an account. The amount of the deposit is typically the same amount as the credit you will be allotted.

Obtain a Secured Credit Card

A secured credit card can be used just like any other type of debit card. You will make purchases and then make a payment on the due date or before. The card will incur interest if your balance is not paid in full. If you fail to make a payment your cash deposit will be used as collateral.

A secured credit card is not meant to be used forever. The main purpose of this type of card is to help you build enough credit up in order to be eligible for an unsecured credit card. Unsecured credit cards do not require a deposit to be made and come with many other benefits.

First Step To Increase

When choosing your unsecured credit card you should try to find one that has a low annual fee. In addition, it is important to make sure that the secured card reports to all 3 of the credit bureaus, TransUnion, Equifax, and Experian.

When you close your secured credit card account you will receive the deposit that you made back.

Obtain a Credit Builder Loan

Credit builder loans are exactly what they sound like. These loans are designed with the specific purpose of helping people build their credit.

Typically, with this type of loan the money that you borrowed will be placed into an account that is held by the lender. The money that you borrow will be held until you pay off the loan amount. Essentially, a credit builder loan is a forced savings account. You are paying into the account for money that you want to borrow.

Loan Will Increase Your Credit Score

When you pay off the loan the money will be released to you. All of the payments that you make will be reported to each of the three credit bureaus.

These loans are typically offered by community banks or credit unions. There is at least one bank that offers a credit builder loan online.

Obtain a Co-Signer

Another way to obtain unsecured loans or credit cards is by using a co-signer. While obtaining a co-signer might sound like a good thing to do, it is important to note that anyone that chooses to cosign a loan or credit card with you will be responsible for any debt that you accrue and do not pay.

Co sign Credit

Get Added as an Authorized User

Instead of co-signing a loan with you one of your friends or family members may be willing to add you as an authorized user on their credit card. One of the nice things about being an authorized user is that you will get to have access to a credit card, be able to build up your credit history, and you will not be obligated to pay for the charges that you make.

With that being said it is important to discuss the terms that your friend or family agrees to when they add you to their card.

When discussing the terms of being added as an authorized user, make sure that you discuss whether or not the card company will report authorized user activity to any of the credit bureaus. This activity is typically reported, but you want to make sure because if they are not it will not help you build your credit history.

If your parents have already established a good credit score, you can use this to your advantage if they are willing to add you to their credit card as an authorized user.

Use Rent Reporting Services

Report Your Rent

If you are currently paying rent for an apartment or home, it is important to note that not all credit scores take these payments into account and often times paying your rent on time is not reported to any of the credit bureaus.

There are several rent reporting services such as RentTrack and Rental Kharma that will take one of the bills that you already pay and put it on your credit report. This can help build a positive credit history as long as you are making your payments on time. This can help you build up your credit history enough to possibly get a credit card or loan that can firmly establish your credit history for all types of lenders.

Building Credit With Good Spending Habits

Perhaps the most important thing to remember when trying to build credit is that it is going to take some patience and time. Typically, it will take a minimum of six months of paying all of your bills on time in order to establish a good credit ranking.

One of the ways to make sure that you stay on track of building your credit is to practice good credit habits in order to show lenders that you are in fact creditworthy. Some of the ways that you can do this include:

Get Your Credit Repaired at Credit People
  • Make sure that you pay all of your bills on time. This includes credit accounts, utility bills, rent, and anything else. Any bill that goes unpaid could potentially be sold to a collection agency. When this happens your credit score can be severely damaged
  • Once you have established a credit history and obtained unsecured loans or credit cards, it is important to maintain a low credit utilization. The best practice is to pay your entire credit card bill in full each month. If this is not possible, make sure that the balance that you carry is less than 30 percent of your total credit limit.
  • ​After establishing a credit history it can be exciting to open up new accounts. However, it is important to avoid opening too many accounts at one time. A new account will lower your average account age, which plays a role in your credit score.
  • Keep your accounts open. Unless you have a card that charges you a fee, keep each of your cards open and active in order to improve your credit history as well as your credit utilization ratio.
Credit Report Analyzing
  • Check your credit report each year and look for any errors and discrepancies

Checking Your Credit Scores And Reports

Building your credit will take some time. Once you have established a credit report, the next thing you need to do in order to maintain a high credit score is to make sure that you periodically check your credit report. The credit report is basically like a report card of how you have used any credit throughout your past.

You are entitled to one free credit report each year from each of the three main credit reporting bureaus. You can access these reports at annualcreditreport.com.

Credit Card Statement

Obtaining a free credit score is a bit trickier. However, there are more and more credit card companies that are printing a consumer’s score on their statements each month. Some companies are even offering credit scores to those who are not their customers. However, most of the time you will need to pay a fee in order to obtain your actual credit score.

Conclusion

Overall, the most important thing to remember when considering building your credit is that it is going to take time. You are going to need to be patient and work with what you are offered.

It is important also to learn what counts toward your score. If you get a new credit card you need to make sure that you learn how credit scores are calculated so that you do not make a juvenile mistake such as missing one of your payments or maxing out your spending limit.

Another thing to consider when you are just starting out is that age does matter when it comes to your credit history. According to a report conducted by SubscriberWise in 2011, of the 0.2 percent of people who have a credit score of 850, most were over the age of 60. On average, these people had a credit history that was over 30 years old on average.

Credit Score Ratings

If you are just starting out you are not going to have a score above 800. It is simply not possible. Instead of becoming frustrated by this, make building your credit history one of your long term financial goals. Keep accounts open, even ones that you do not use often, so that lenders can see that you have good borrowing behavior over the course of time.

Remember, getting started early with good borrowing history can be very important for your financial future. A good credit history is going to stay on your credit report forever. If you make sure that you make all of your payments on time and keep your accounts open, you are well on your way to improving your credit history and qualifying for better lending options.

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