How to Effectively Build Credit
You need a good credit score to buy a house or car. You may also need good credit to start a business or get a job. It takes time to build credit. Fortunately, there are a number of things that you can do if you want to know how to build credit.
Apply for a Credit Starter Loan
Credit starter loans are also known as short term installment loans or fresh start loans. They’re often referred to as training wheels for building credit. You can get a credit starter loan from loan offices online as well as most credit unions.
You will need to find the loan that is right for you. It is a good idea to take out a small loan. You should also take out a loan with a term limit that is under 24 months. If you are approved for the credit builder loan, then the amount that you borrow will be put in a savings account. You will have access to the funds once you pay off the loan.
If you make payments on time, then you will be able to build your credit. You will get positive reports sent to your credit.
Get a Secured Credit Card
Many people are using credit cards to establish credit history. If you have not established credit, then it can be difficult for you to get an unsecured credit card. That is why you should apply for a secured one. You will have to make a deposit before you use your secured credit card. If your deposit is $300, then your credit limit will probably be $300. You will get positive credit reports when you make payments on time.
You should try to keep the balance on your credit cards low. Your credit utilization ratio is used to calculate your credit score. The higher your credit utilization ratio is, the lower your credit score will be. It is best for you to try to pay your balance off in full each month. This will help you keep your credit utilization ratio low. It will also help you avoid going into debt.
Become an Authorized User
You can build your credit by becoming an authorized user on someone else’s credit card. If the person who uses the credit card consistently makes payments on time, then your credit score will get a boost. Financial experts often recommend that people become an authorized user on someone else’s credit card before getting their own.
Pay Bills on Time
Paying credit cards and loans on time is not the only way to build credit. If you make your rent payments on time, then you can build your credit. Many landlords use PayYouRent and RentTrack to report on-time rent payments. You can also get your utility companies to report on-time payments.
It can be challenging to build credit and boost your credit score if you are starting from scratch. Fortunately, you will be able to quickly build credit by using a credit starter loan or a secured credit card. You can also become an authorized user on someone else’s credit card. Additionally, you can build your credit by making sure that all bill payments are made on time.