In our last blog post about credit, we discussed the basics of credit.
Today, we will review some steps you can take to build your credit from wherever you currently are in your credit journey.
Building Credit
There are two main ways to build credit: through a credit card or through an installment loan.
4 Ways to Build Credit with Credit Cards:
1) Open your first credit card account
Even if you already have some credit history, look for a card with a low spending limit, which may be easier for you to qualify for. Make sure to use it and pay off the balance every month.
2) Get a SECURED credit card
This is a type of credit card that is linked to a savings account. The spending limit is typically the account value or a percentage of it. Think of it as collateral or a safety net. A secured card works the same as a regular credit card where you make responsible charges, and pay on time every month. Not all financial institutions carry these cards, but big-name banks such as Chase and Bank of America typically do.
3) Open a joint account or become an authorized user
If you are on the younger side without any credit history, it may be advantageous to open a joint account or become an authorized user with a responsible person who is credit worthy. We do warn, if you forget to pay the balance owed on the account, both owners and authorized users will feel the impact of late or missed payments.
4) Request a credit limit increase
If you are already in the credit card game and have a decent credit score, you may be able to ask for a credit limit increase from your card provider. Your credit utilization ratio represents your total amount of credit vs the amount used. A utilization ratio of 30% or less is considered good and can help add points to your score. However, if you still carry a balance month to month, it might not be best for you to ask for a credit limit increase showing you are not able to manage what you have on your plate.
4 Ways to Build Credit with Installment Loans:
1) Paying off student loans
With around 70% of students taking loans to pay for higher education, you might be one of them. If you are one of those many people, we highly recommend you pay them off on a monthly basis as these are reported to the credit bureaus.
2) Take out an auto installment loan
Seeing that most people drive in America, auto loans are one of the easiest types of loans to obtain. If you are planning on buying a vehicle, make sure to shop around for the best possible interest rate. Also, if you are having trouble finding one, you may need someone to co-sign with you. This is similar to opening a joint credit card.
3) Apply for personal loan
Have a project you want to work on or want to start a business? Personal loans can help you build credit quickly. Although they do have higher APRs and interest rates, they can help establish good rapport in the beginning of your credit journey.
4) Report alternate payments
A great example would be rent. Rent is not reported to credit agencies. However, if you do not have any other proof of credit cards or other loans, you can ask your landlord to report your data or contact credit agencies directly to vouch for you. Other examples would be internet or phone providers.
If you have questions about your specific credit situation, feel free to schedule a meeting with us HERE!
In good financial health,
Tori