The Keys to Building Your Credit from Scratch
It may seem daunting to attempt to build your credit from scratch, especially when most lenders want to see a viable history before they extend you any funds. But, don’t worry, beginning this journey prudently will make all the difference in ensuring a sound financial future for you and your loved ones. Whether you are looking to buy your first house or a new car, follow these easy steps to set up a strong financial future.
How to Begin
One of the reasons why you may have been denied credit in the past is that lenders require a high credit score for the cards or loans you have applied. If you are just beginning your credit journey, start with smaller commitments and look for options available for those with little to no credit.
In order to build-up your credit, secured credit cards are ideal. Regardless of the nature of the applicant, they can be utilized, as they are backed by upfront cash collateral deposits. In other words, the cardholder essentially is required to deposit an amount equal to the credit limit, thereby helping to remove the risk of default for the issuer. The more important thing, however, is that the company reports the card to the bureaus of credit so that your credit file can be built on a positive payment history.
Back to School
Young consumers and credit newbies should consider student credit cards, as they are an effective way to build your credit history. These cards provide promotional rewards and offers with typically easier acceptance standards. The downside of these cards is that they normally have higher interest rates with lower credit limits.
Another option commonly used to build credit are retail credit cards from retail stores. Compared to non-retail cards, the interest rates are considerably higher and usually have low credit limits, but they are easier to acquire. Be aware that these cards will charge elevated interest rates and fees if you do not pay off your balance each month.
It is a great option to consider becoming an authorized user on a spouse’s credit card or a close family member. The responsible use of the card by you and the card owner is required because the history of the card is usually reported to the credit bureaus. It will be good for both of you, however, as you build your credit histories collectively. At the same time, if either of you defaults, both parties will be affected. This is the potential risk, should the person you are borrowing with experiences a change in their life circumstances.
Do Some Homework
Great care and consideration is needed in acquiring a credit card. Like any other decision that requires great inquiry, be sure to do your research to determine the best options for your needs. Check online for reviews and other consumer experiences with cards you are considering. Consider all of the fine print details as well concerning interest rates and fees before committing to a company. For younger borrowers under the age of 21 years, you likely will need a co-signer to ensure your payment obligations.
Once you receive your first card, there are a few steps to follow to ensure you have a seamless journey in building your credit prowess. First, make sure you don’t carry a large balance. You may be thrilled to get your first card, but never get overzealous by overextending yourself. Experts believe you should use only 1 to 20 percent of your available credit in the beginning. This will impress lenders because it gives out the impression that you are not entirely dependent on credit. Be sure to pay all of your monthly statements on time. Potential creditors always check the history of your payment commitments. You can impress them if you have paid all your previous bills on time.