Have you ever gone to a store and realized you don’t have cash or cards? If you answered yes, you know that moment of panic when you need to pay for something and are short a few dollars. The good news is that there are plenty of ways to build credit when you have no credit history. In this blog post, I’ll show you 10 ways to start building and improving your credit.
10 Ways to Build Credit
First, let’s look at the benefits of building credit. Credit score Building credit builds your credit score, which means it makes it easier for lenders to approve your loans. Your credit score is one of the things you can use to get the best deals and discounts, like zero percent interest offers, even if you don’t have a credit score. Low payment history Even though credit cards and loans take time to start contributing to your credit score, low credit card payments make it harder to build a healthy credit score. One of the best ways to repair your credit and improve your credit score is to keep your payments on time.
Take out a loan
Debt can help you learn the value of money. It can also serve as a cheap source of income to start building credit. My friend Robert Spire, whom you can read about here, got a $50,000 loan from Kabbage to help him pay for furniture and electronics. When Robert’s bank found out about the loan, they revoked Robert’s line of credit. Robert was left with a big hole in his savings account, but he used the loan to jump start his credit building. Two months after he borrowed the money, Robert got a loan for $35,000 from a major bank. He used the money to pay for the new furniture and electronics. He was able to pay off the original $50,000 loan plus the $35,000 loan in about 2 years and he now has $50,000 in credit.
Get a credit card
Having no credit history can be scary. But it doesn’t have to be. In fact, with a few clicks of the mouse, you can get a credit card. Just pay with cash when you can. Credit cards aren’t free. But you can use them for free things like movie tickets, gift cards, and even hotel reservations. And some credit cards will make it easier to improve your credit. Sign up for a bank account If you get a credit card, you can start building credit. But why not also get a bank account? Your bank account isn’t free, but it’s cheap and easy. It doesn’t need to be a good bank either. Many credit card banks will give you a free or cheap bank account when you sign up for a credit card with them. And many banks will even let you check your account balance without a fee.
Open a checking account
The easiest way to establish credit when you don’t have any is to open a checking account. Most banks and credit unions offer accounts that can be used as part of a credit scoring model called a “Credit Card Account.” If you have a checking account that is used for bill payments and that you regularly make money deposits into, it could be useful for establishing credit. Keep all the receipts Some card issuers and banks offer special rewards to customers who keep receipts. In a lot of cases, it doesn’t matter that you have an account that’s used to pay bills — you still need to keep receipts to show that you’re responsible with your credit cards. Many companies offer discounts on items and coupons that customers can receive when they can prove they keep track of their spending.
Get a secured credit card
If you don’t have any credit cards, consider getting a secured credit card. These are usually offered at the credit union where you hold your bank account. When you open a secured credit card account, you will put down a deposit of at least one month’s rent in advance. This deposit will usually be $100–$300. This deposit gives you a “line of credit” with the issuing credit card company. It will be used by the issuing credit card company to cover the cost of the payments you make, so you will only be responsible for the minimum payment and the interest portion. When you make your minimum payment, the secured credit card company will reimburse you the balance of the payment, plus any interest.
Get a mobile phone
The first step to building credit is to get a phone. Most importantly, the phone you get will act as your credit. Most people have no credit history. In fact, only 30% of US households have credit cards and 28% have a credit score. There are some great prepaid phones on the market. If you don’t want a contract, you can sign up for an easy to use financing plan. Make payments on time If you don’t have a credit history, it’s hard to build credit. It’s just impossible. However, it’s possible to build credit simply by making on-time payments on your phone bill. If you make a payment of $10 every month, you’ll have paid over $100 for your phone. Over the course of the next year, that’ll add up to credit.
Get a retail card
It might be easiest for you to start building credit if you can get a retail card. This is where you pay for the stuff you buy with plastic and they send you a bill in the mail. It’s actually pretty good practice to open an account with this kind of credit card company. The upside is that they aren’t too picky about what you use the credit card for, like online shopping or browsing. The downside is that you need a credit history to get this type of card. This would be a great way to start building credit if you have no credit history at all. You could sign up for a store credit card. You could also get a credit card that’s intended for your small business. You can go the route of getting a secured card.
Get a student loan
One of the best ways to build credit when you have little credit history is to get a student loan. According to studentloanhero.com, it takes an average of 8 to 10 years and an average of $16,000 to build a credit score. It takes an average of 10 years to get to a 720 FICO score. It takes an average of six years and $19,400 to get to a 620 FICO score. So, if you have $1,000 in credit card debt, you will need to spend $10,000 in order to get back on track. This method is a popular strategy among those who are going to college to improve their credit, but it is not the only way to build credit. The Truth About Credit Scores There is a myth that a credit score is used to judge your creditworthiness.
Get a car loan
A credit card is not enough to get approved for a loan. Car loans are even harder to get than credit cards because of the risk of non-payment and lack of credit history. But with good credit, you can get a loan for almost any car with a decent car price. I got approved for a $16,000 loan for my 2007 Toyota Prius because I had a steady stream of income. In fact, I still have the loan, so I can track how much money I’m making on my car loan each month. To be sure, you can get a car loan from a credit union or even a bank without a credit score, but the extra effort is always worth it. Cash for college There are plenty of options for getting money for college. If you’re on a fixed income or have a limited income, you can get student loans.
Conclusion
Everyone wants to start building credit and improving their credit history. This means that the last decade has seen a huge increase in credit applications. I’m glad to see this as it gives every opportunity for everyone to improve their credit. And hopefully, after reading this post, you’ll have some ideas for things you can do to build your credit and improve your credit score.
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