If you are trying to establish credit, there are important facts that you need to know. Be sure to let your newly established credit work for you, not against you. There are many tools available to consumers that will help in this journey. It is important that you use these tools to help you understand how to establish credit, maintain good credit, and improve credit.
- Build Credit With a Credit Card
A quick way to establish credit is to obtain a credit card. It is not easy to qualify for a credit card with lots of benefits when you are just beginning to establish credit; however, there are options. Many credit card companies offer student credit cards for college students that are beginning to establish credit. Usually, these companies will provide information to students and give them a credit line in proportion with their financial situation. This is a great way to qualify for a credit card that will build credit.
Another option is a secured credit card. Secured credit cards usually require a deposit that will actually serve as collateral. A third option is a store credit card. Usually, store credit cards are somewhat easier to qualify for and it limits you to purchases made at that particular store or chain. This is a great way to test your charging habits because of these limitations. Store credit cards typically start out with a smaller line of credit which helps keep the charger in line. Things to remember when using credit cards are that you shouldn’t charge more than 30 percent of your limit. Charging more than 30 percent can reflect poorly on your credit score. A good rule of thumb is to not charge more than you can pay back at the end of the month. Remember you don’t have to carry a balance to build credit.
- Loans That Build Credit
Another way to establish credit is to obtain loans with installment payments and make sure that all payments are made on time for the life of the loan.
Installments loans can be secured or unsecured. A secured loan usually attaches something that you own as collateral for the loan in the event that you do not repay. Usually, a vehicle or something of that type of value is what companies want for collateral. Some lenders may also offer unsecured personal loans that do not require collateral. A lending company or credit union is a good place to start when looking for an installment loan with no credit history. If you have a good relationship with your bank, you may want to talk to the lending officer about requirements for an installment loan.
Some lenders also offer starter loans. These loans are designed for clients without an established credit or clients trying to repair their credit. Typically starter loans require the borrower to have the amount loaned secured in an account during the time of repayment. After the loan is paid back, the money is free to be used. This is a great option for those that want to establish credit.
Auto loans are a great way to establish credit because the vehicle itself is collateral. This is a great option for a younger borrower and a great way to build credit. A younger borrower may even secure a better rate by having a parent or responsible adult co-sign on the loan.
- Credit Rules To Live By
Stay on track. Remember your goal is to build good credit, not bad credit. There are certain rules to follow as you begin this credit-building journey. First, avoid paying interest. Live by the rule of paying a credit card off each month and you will not owe interest. Second, never overspend. We are all tempted at times to make emotional purchases of items that we feel that we cannot live without. Understand your financial situation and never spend more than you can pay off. Third, always pay on time. Don’t pay your installment loan or credit card payment late. This avoids late fees and poor marks on your credit rating. And lastly, never miss a payment. Missing a payment can send you in a downward spiral that is hard to regain.
