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How To Start Building Credit

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Ever been pressured to provide your credit score? If you’re not, then wait for your turn. Probably it’s only your grocer who will not ask for such any time soon, but any other business which involves matters of credit may ask to check your credit. Your record on debt management determines your credit score, and lenders use such to establish your risk level as a borrower. 

 Suppose you’ve been making on-time payments on your current and previous loan facilities and responsible debt management. In that case, your credit rating will most likely be good, and you stand a better chance of qualifying for credit with better terms. 

On the other hand, if you’ve negatively listed because of late payment for your previous loans, or poor credit management, then you may be denied credit. If you get approval, the terms will also be unfavorable.

In this article, you learn tips on how to start building your credit and maintain a positive score.

Photo by Pickawood on Unsplash

Building Your Credit with Card

Cards are pretty valuable tools for building your credit. They’re the standard form of credit that you use daily and will help build your credit. When you use the card to pay for groceries, gas, pay for travel, paying in time tells lenders that you can responsibly manage debt.

But before you sign up for that credit card, be sure that you can comfortably meet your repayments. Missing out on such will leave you worse off than before.

 This is how you build a good credit score with your credit card.

Open a Credit Card Account

The credit card type you apply for will depend on whether or not you have a credit history. If you’ve some history of borrowing, then the beginner card is easier to get approved. If you’re green on credit matters, you will need to apply for a secured credit card to get approval.

Once you get the card, use it by purchasing your groceries and those daily purchases you can easily afford. Then pay your card on time; lenders know that you’re a responsible borrower and thus can trust you with a bigger credit facility.

A Secured Credit Card

If your credit score is poor or you’ve no credit history at all, no lender will feel safe giving some credit to you. But all is not lost; you’ve got the option of a secured credit card. It’s a card that works like the traditional credit card, only that you’re required to make some deposit upfront.

That acts as your collateral against the debt. That makes it easy for them to approve the credit card- after all, the risk is zero. After getting the secured card, make sure you make your repayments promptly. That builds your credit score significantly.

Request for a Credit Card Limit Review

If you already have an existing credit card, you should explore opportunities to get the most out of it. Use your limit, pay in time, and after some months, you can request a limit increase. That will improve your credit utilization ratio- an important credit scoring factor that compares your balances to your credit limit. Keeping your balances under 30% of your limit will boost your scores, and the lower the utilization, the better your scores are.

When your account has large outstanding balances, it may not be easy for lenders to approve your requests. 

Therefore before you make a limit increase request, you should pay down as much of your debt as possible. Again, when your limit increase is approved, resist the temptation of ramping up your card spending- it can mess you big time.

Building Credit without a Credit Card

Credit cards are an excellent option for building your credit but not the only option.  

Your credit score is a reflection of how well you’ve managed your debt, and the accounts that are reported to credit bureaus and have a good standing will boost your score.

Whether you’ve existing accounts or not, see below what you do to boost your score.

Pay Existing Loans Diligently

The most critical aspect in rating your credit history is your payment history. Thus you must always ensure you get the best secured loans and your debt is paid promptly. The much you have reduced your loan balances tells lenders that you can pay up your debts, and therefore, you have a higher score.

Get Installment Loans

You may not have a long credit history or none at all. You can apply for an installment loan where you repay in monthly installments. You can get a mortgage, an auto, or a personal loan and repay on time to boost your credit history.

You shouldn’t just take a traditional loan to boost your credit score; and thus, you can check out also credit-builder loans, which serve the purpose.