So, what comes first: a loan or a good credit score? One of the facts of life is that you need someone to be willing to take a chance on you that first time. However, there are some things you can do to make yourself more attractive to lenders, even if you have yet to establish a reputation.
Here’s the smart way to build a credit history.
Secured Credit Cards
The beauty of this approach is, while it’s pretty much risk-free for the issuer, you’ll still get treated like a regular cardholder. You’ll make a cash deposit with the card company in exchange for which they’ll cover your purchases up to that same amount. In other words, it’s a credit card with training wheels.
You’ll get to ride solo after about a year if you handle it well. They’ll keep your deposit and cut you off if you treat it poorly. Be aware, though, some secured cards have annual fees. You’ll also be charged interest on any balance you carry from month to month. To derive the desired benefit, make sure the issuer reports your actions to all three credit bureaus before you sign up.
Get a Co-Signer
It can be useful to have someone with more experience offer to back you when you’re just starting out. Be careful though, as many a good relationship has been soured as a result of a co-signed credit agreement gone bad.
Another way to go is to become an authorized user on someone’s credit account. However, you have to make sure the creditor with whom you’re working reports your charges and activities as your own.
Start with a Store Card
Many jewelry stores and other types of retailers will carry accounts on behalf of shoppers. While these can be easier to qualify for than standard credit cards, any activity you generate gets reported to the bureaus just the same.
Get one of these accounts and manage it well; you’ll find other types of lenders will look favorably upon you, too.
Student Loans
You might already have a credit history of which you are unaware if you have a student loan. While often looked upon as a source of trouble for young people trying to start their lives, student loans get reported positively to credit bureaus while they’re in deferment. In other words, if you’ve had a student loan for about a year, many card issuers will grant you credit as well.
Making It Work
These four options will get your foot in the door. What you do afterwards will determine whether or not you gain admittance to the room — so to speak. First and foremost, be judicious in your use of that first account and every succeeding one for that matter.
Keep your balance to less than a third of your limit. Always pay on time and always make more than the minimum payment. In fact, the best move of all is to pay charges off before the grace period ends each month and interest accrues. Keep your accounts open, even if you don’t use them. Old accounts, kept in good standing, improve your credit score. Be judicious about applying for new accounts — especially ones similar to those you already have. Filing too many applications of the same type too close together can lower your score.
Credit Is a Privilege — Not a Right
Keeping to those guidelines and making them a habit will build your credit score massively. On the other hand, as these Freedom Debt Relief reviews bear out, doing the opposite can get you in massive trouble. Simply put, the smart way to build a credit history is to get your first account and treat it like a privilege — rather than a right. Pay close attention to the hallmarks of a good credit score, conduct yourself accordingly and you’ll be well on your way.