Five ways to build your credit history
They say that money is what makes the world go ‘round, but often times it feels like credit is what actually makes the earth spin. Credit is one of the necessary evils of life. You’ll require it to do everything from getting a car loan, to making homeownership a reality. Credit also offers an interesting catch 22 in that most people don’t want to find themselves in unnecessary debt to build a credit history. Thankfully, there are a few ways to build your credit without incurring unnecessary debt.
Authorized Users
Becoming an authorized user on a parent/guardian’s or a trusted partner’s credit card account is one way to start building credit if you individually don’t qualify for credit cards. If you are an authorized user, you are not legally responsible for paying the accumulated debts on the account, while you are able to make purchases. The pro to this is that you can build credit while also having the convenience of using a credit card. The flip side is that it will not have a large impact on your credit, and should the primary account holder not pay the bill on time, it could also negatively impact your credit. You’ll want to be vigilant and only ask a trusted individual to add you as a user, and not depend on this as your primary means of building credit.
Take out a Credit Builder Loan
Credit builder loans work sort of like secured credit cards. You deposit money into a certificate of deposit, but you then make monthly payments against that money. The bank will report to the credit bureau that your account is in good standing, and when you’ve repaid the loan you can once again access the money. This is a safe way if you have money to invest, to build credit without having to deal with credit cards. In some cases, you’ll even make interest on the loan when the loan payment schedule is complete.
Open a Credit Card and Pay the Balance in Full Each Month
Paying your balance in full each month is an easy way to stay on top of debt. In order for this to work, you’ll need to utilize the card responsibly. Some people use credit cards to pay for groceries they would normally buy over the course of a month, and pay them off with the cash they would normally allot for groceries. This system takes a bit of patience and a lot of discipline, but it can be helpful in building credit. Another option is to use the card for only small purchases and pay off the balance at the end of the month. Think, paying for your regular trip to Starbucks with the credit card instead of with your debit card. These small balances, over time, look better than a card that is maxed out and has the minimum paid on it. It will also do wonders for your credit utilization score, which is used to calculate your overall credit score.
Open a Secured Card
Secured credit cards require you to put down a deposit. More often than not the deposit you make will become your available credit amount. These cards report to the credit bureaus the same way unsecured cards do, but the low limit makes it much harder to get in trouble with repayment. A $300 secured card can be paid off in full each month, which raises your available credit and improves your credit score.
Don’t Close Cards
One important component to your credit is your credit history length. The amount of time you’ve had an account in good standing can make or break your credit score, so once you open a card don’t close it too quickly. You’ll want a lengthy history, but that takes time and closing down cards doesn’t really help you to your goal. In fact, it can actually harm it. Even if you are not carrying a balance, keep the card open and use it occasionally for small purchases to keep it active.
While there are many ways to deal with credit scores and the building of credit, these are a few tips that might come in handy, whether you are just starting out on the road to creditworthiness, or you’ve encountered some hiccups along the way.
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