Lenders rely your credit score to determine the amount of loan they can lend or if they are going to lend you any money in the end. Lenders use your credit score to predict if you will pay them in time. Thus, your credit score is a pivotal aspect of your financial life.
Your credit score will not only affect the loan amount you are eligible for, but also the terms of your credit card. You will be able to save money if you have favorable terms on your credit card.
You may be worried about your credit score. Yes, it would be best if you put a lot of thought and effort into it. However, there is no need to worry much as there are ways you can use to build your credit score under various circumstances.
Your credit history and credit reports will be used to determine your credit score range. Your credit history is a record that demonstrates your responsibility and ability to pay debts.
The following information is present in your credit history:
- Amount owed
- Number of credit accounts
- Types of credit accounts
- How long you have had these accounts
- If you pay your bills on time
- Recent credit inquiries
- Available credit used
10 Ways You Can Build Credit With a Credit Card
1. Use a Secured Credit Card
A bank or financial institution will issue a secured credit card after you deposit the credit amount you intend to use. You will have the authorization to use the credit card for transactions up to your deposit limit.
You will need to keep up with the payment activity to get a good credit report from the three credit bureaus: Experian, Transunion, and Equifax. The bank will retain your deposit if you fail to pay your bill and may upgrade you to a non-secured credit card if you make prompt payments.
2. Get a Credit Card With Good Rewards
You can apply for your credit card after you create some credit card history. Some of the credit card benefits and rewards include travel perks, cashback or bonus points. Look up the credit cards with the best benefits bonuses and rewards before you settle on one.
3. Check Your Credit Limit
Factors in your credit card report like your income will affect your credit card limit. Your credit card limit is also your credit utilization rate. A good credit score is characterized by a utilization limit of 10% or below.
You can request the bank to increase your limit if you make timely payments and spend below the threshold.
4. Note Due Dates for Your Payments
When are your monthly payments due? You should know this before you start spending to avoid late payments. Late payments will bring up extra fees.
5. Note Your annual Percent rate (APR)
Your credit card APR is the interest rate charged on your credit balance if it is past the due date. Your credit history influences what your APR will be. Most APRs range between 17% and 26%.
Some banks tend to increase your APR if you make late payments. Others offer a 0% introductory APR. Make sure you pay the full balance in a timely fashion to avoid the APR.
6. Use the Card to Purchase
Using you credit card to shop can help you earn a good credit report. You will be able to earn points, cashback, and travel miles if you use your credit card for purchases. If you have a high credit card debt please read more on How To Eliminate Your Credit Card Debt In 5 Simple Steps.
7. Check Your Transactions Regularly
People tend to lose track of their credit card balance when they use credit cards rather than cash. Check your transaction history at least once a week to note how much credit limit you have left.
8. Set up Auto-Pay
Connect your checking account to your credit card account. It will make automatic payments; thus you will not have to worry about forgetting to make the payments.
9. Pay Your Credit Card Balance in Full
The bank or credit institution will notify your bank if you make late payments. Furthermore, late payments will accrue interest and late fees. Make sure you make the full payment either before or on the due day as they are a credit score simulator.
10. Take Time Before You Apply for More Credit
Your credit report will update every time you apply for more credit. Make sure your credit applications have a space period of at least six months. If you narrowly space them, you risk lenders denying your application or granting you an unfavorable interest rate.
6 Ways You Can Build Credit Without a Credit Card
Most financial advisors and articles will talk about using a student credit card or a secured card to boost your credit score. However, there are ways you can build a good credit score quickly without a credit card. They include:
1. Pay Your Bills
Do you have a phone, utilities, or cable bill? You can use them to build a positive credit score.
You can call up your service provider, for example, the telephone service provider and request them to report your payments to the major credit bureaus, which include TransUnion, Equifax, and Experian.
You should know that this method may not be as effective as your service provider is under no obligation to fulfill your request. Here are 15 Easy Ways to Lower Your Utility Bill and still build your credit.
2. Report Your Rent
Your apartment rent can help you build your credit score. Like your other bills, rent is not necessarily reported to the credit bureaus.
However, you can higher rent reporting service to notify the credit bureaus for a small fee. Your credit report will reflect the monthly rent payments after the reporting service reports.
3. Pay Your Student Loans
Do you have a Federal Student Loan? The credit bureaus pay much attention to it and accord it as much interest as car loans, installment loans, and mortgages.
If you defer from your student loan, your credit score will neither increase nor decrease. However, if you default from your student loan, your credit score and finances will take a major hit. You should not defer or default if you want to build your credit score.
4. Take a Credit Builder Loan
A credit-builder loan works like a reverse secured credit card. You only need to select a payment period and make payments. You will be able to collect these payments at the end of the period. You can only access this account after you complete the payments.
The bank or institution will report every payment you make to the credit bureaus. A credit-builder loan can help you build your credit score fast.
5. Open a Store Credit Account
There are many stores that offer credit accounts and report your progress to the credit bureaus. A good example is Home Depot among other home improvement stores. Make sure your store reports to the credit bureaus before you enroll for a credit account.
6. Keep Your Job
Your credit file will reflect your employment status. However, your employment has no impact on your credit score range. It is an added advantage to lenders as a stable employment background shows they can trust you.
How You Can Build Credit From Scratch without Credit History
Don’t you have any credit history? You are better off than a person with a bad credit history. However, you could still be in a challenging position. Why?
Banks and lending institutions will lack a way to predict your ability to pay back your credit on time.
What is Bad Credit?
A bad credit status means you failed to pay back a loan or credit as per the agreed terms. Such a situation makes banks and lenders hesitant to loan you money or give you a credit card.
What is No Credit?
A no credit status means your credit score has no history. Lenders and banks may still be hesitant as they have no means of predicting if you will pay up as per the agreed terms.
It is better to have no credit because it means you have the chance to move towards a positive credit score rather than accumulate a bad credit score.
5 Ways You Can Build Your Credit from Scratch With No History
The following ways can help you build your credit score after bankruptcy times.
1. Get a Card from Your Checking Bank
It does not mean you lack a financial history if you require a credit history. However, you may ask for a secured credit card from the bank that holds your checking account. You can get a secured credit card for a deposit of less than $500.
You will prove your creditworthiness if you pay the installments on time.
2. Apply for a Store Credit Card
Gas stations and retailers will give you a credit card without a credit history. Make sure you limit your expenditure to an amount you would manage with cash. Make sure you pay the full credit amount before or at the agreed period and request the store to report to the credit bureaus.
3. Find a Cosigner
Get someone with a good credit score to co-sign your loan. You will need to be trustworthy to get someone to cosign the loan. However, remember that they are putting their trust in you and their credit reputation on the line.
Late payments will jeopardize your credit score and that of the cosigner.
4. Take a Credit Builder Loan
A credit-builder loan is a loan that is meant to help you establish a credit score. You start by depositing the money you intend to borrow into your account. You will get your deposit back once you fully pay the credit amount. Furthermore, you will build your credit score.
5. Get Authorization to Use Another’s Card
You can ask a relative or parent to grant you access to their credit card. Your credit score will grow through the primary cardholder. Make sure you make the card-issuer is aware so that they notify the credit bureaus of your activity.
Ways You Can Build Credit With the Help of Your Parents
Your parents can contribute a great deal to help you build a credit score.
I. Financial Competencies
- Start Early
Your parents could orient you on money management and financial competencies at a young age. 15% of your credit score is influenced by how long your credit history is. However, your parents will have to ensure you use your credit card responsibly as there is a possibility you may ruin your credit score at a young age.
- Parents Can Help You Manage Healthy Practices
Since you started to build your credit score early, you will need to ensure you manage it wisely with the help of your experience. Your parent should help you differentiate between needs and wants.
- Parents Can Help Limit Your Purchases
At a young age, we tend to want many things. We hardly differentiate between needs and wants. As a result, we are prone to making impulse purchases. They will also help you avoid making late payments and high credit card balances.
II. Credit Cards Your Parents Can Help You Get
- Emergency Use credit card
Your parents can authorize you to use the family emergency card, especially when you are away for college. The card may not necessarily impact your credit score unless you use it, but it will teach you restraint, which is vital to maintain low credit balances.
- Low limit credit card
Your parents can start you off with a low limit credit card with a maximum balance of $500. They can start a joint credit card with you to help you build a credit card history that will get you your card. Moreover, you will both be building your credit history and credit score.
- Service station card
Parents mostly offer this card when you start driving. The service station card will most likely be under your parent’s name. The gas card will help you to regulate and account for your expenditure.
5 Ways You Can Build Credit by Being Responsible
All the other methods used to help you build your credit score have one common factor, responsibility. There are measures you can take to use your credit card responsibly. They include:
1. Be Sure You Can Afford a Purchase. Ensure you create a budget and stick to it. Avoid a purchase if the purchase costs more than you have in your checking account. Moreover, avoid or minimize the rate at which you make impulse purchases. You can use Simple Budgeting: The 50/30/20 Rule to budget your finances.
2. Pay Off the Balance as Much as You Can. The more you hold on to a credit card balance, the more fees the bank charges you. Ensure that you at least meet the minimum installment. However, it would be better if you can surpass the minimum amount as you will pay off the debt faster, and it is even better if you can clear the whole balance at a go.
3. Pay the Balance on Time. Timely payments have a huge impact on your credit score, as it will prove your reliability to the lenders. Ensure you cover your bills before or at the agreed time.
4. Avoid Cash Advances. You should only consider accepting a cash advance in case of an emergency. Banks and credit card institutions charge higher interest on cash advances. People who take cash advances are more likely to default their outstanding debt compared to people who don’t.
5. Low Fee, Low Interest. Look at the cardholder agreement or call up the customer service desk to inquire about the interest and fee charges. Pick a credit card with low interest and a low annual fee.
Related post: 10 Personal Finance Tips To Help Make You Rich.
A good credit score creates many possibilities for you. For example, your credit score determines your terms and interest rates when you borrow, and they affect the cost of your life insurance, it affects your lease agreements such as rent and more.
Ensure you check your credit report and credit score regularly. Look at the factors that are affecting it and try to take care of them. Once you know where you stand and you will be able to understand what course of action to take. For example, if you have no credit history you can find a co-signer or a credit builder loan.
Responsibility is the most important factor when it comes to building or a good credit score. It will govern how you spend your credit balance, how you make your payments, and how you allocate your payments.