Building your credit for the first time can be a tricky task. If you don’t have a credit history, it can be difficult to acquire a loan, a credit card, or even an apartment. But how can you do that when no one will give you credit in the first place? This catch-22 can be solved in a few different ways, fortunately.
In order to have a FICO score, you will need at least one account that has been open for 6 months or longer with at least one creditor reporting your activity to the credit bureaus in the past 6 months. Next, you will need to work on building your credit. This can take some time, but done correctly, you can create a healthy credit score, which can open many doors for you and what you want in the future.
Here are five easy ways that you can establish your credit:
Apply for a Secured Credit Card – First, you’ll want to apply for a secured credit card, which is backed by a cash deposit that you make upfront. The deposit amount is typically the same as your credit limit. You’ll use the card just like you would any other credit card to make your purchases; the only difference is that your cash deposit is used as collateral if you fail to make payments. We recommend choosing a secured card that has a low annual fee and reports to all 3 credit bureaus. You’ll receive your deposit whenever you choose to close the account.
Get a Co-Signer – While it’s difficult to get a loan without credit, it is possible to get a loan or successfully apply for an unsecured credit card when you have a co-signer on your side. The only catch is that the co-signer is on the hook for the full amount owed if you don’t make your payments, so make sure that you and your co-signer are prepared. We recommend that you get a co-signer only if you know that your creditor will never be forced to pursue the co-signer if you default. Defaulting on a loan where there is a co-signer can and has caused the deterioration of relationships.
Apply for a Credit-Builder Loan – This type of loan will solely work to help build your credit. Usually, the lender will hold the money you borrow in an account and not release it to you until the loan is repaid. This is a forced savings program of sorts, and your payments will be reported to the credit bureaus.
Become an Authorized User on Someone Else’s Credit Card – If you have a family member or significant other that is willing to add you as an authorized user on his or her card, you can have access to the card and build your credit history. Ask the primary cardholder to determine whether the card issuer reports authorized user activity to the credit bureaus before you become an authorized user. Of course, never make a charge on this type of card unless you get approval from the primary holder of the card. Most importantly, always pay those charges promptly.
Get Credit for the Rent You Pay – Yes, you can receive credit just for paying your rent! Certain rent-reporting services including Rental Karma and RentTrack will track your rent payments and put it on your credit report. This helps you build a positive history of online payments more quickly!
Of course, practicing good credit habits will help build your credit score. Here are a few of our favorites:
*Always make your payments on time.
*Keep your credit utilization low.
*Pay in full each month if possible. If you carry a balance, keep it under 30% of your credit limit.
*Don’t open too many new accounts at once.
*Keep your accounts open for as long as possible.
*Check each of your credit reports annually and look for any errors or discrepancies.
If you or someone you know is struggling with their finances and may need to file for bankruptcy, show them that they don’t have to tackle their issues alone. Bankruptcy Advocates is here to help! Call the experts today at (618) 549-9800 for a free consultation or learn more about us online by visiting www.sidebtfree.com.