Having no credit history can make it difficult to get approved for a car loan, installment loan, apartment lease, or other financial products. When you’re first starting out, though, you’re not going to have the credit history leasing offices want to see. Trying to remedy the situation is a confusing process as well.
To build a credit file, you need a credit card account or loan. To get approved for a credit card or loan, you need to have a positive credit history. It can be frustrating to try establishing yourself when you’re a young adult, and you need general education on credit reporting for later on.
Fortunately, there are ways to build credit, even for people who have never had experience with credit, a credit newbie, or been approved for a credit application before.
What is a Credit Score?
The credit score is a number that represents your credit history that you can ask for through the major credit reporting agency. If there is something missing with the report, you can apply for personal credit report disputes. This number is used to determine how likely you are to pay back the loan or credit card debt. A strong credit score can be used as a measure of your financial responsibility. A bad credit score will have a negative impact on your financial health, especially if you want to open new lines of credit.
Credit scores are calculated based on the information in your credit report. This includes information about the type of loan, whether it was paid on time, and whether you have any collection accounts.
The higher your credit score, the better it will be for you when it comes to getting approved for loans and credit cards. Your credit score is also important when it comes to renting an apartment or buying a car or house.
A high score will help make sure that you’re able to get a better interest rate when applying for a loan or lease, so this should help make building your credit activity easier than ever before. It’s not uncommon for someone with no history to need to get a new line of credit in order to be approved for one.
Find a Co-signer
A lot of the time, adults embarking on their own for the first time will have a parent or financially stable partner co-sign loans for them. If it’s the first time you’ve heard this term, a co-signer is someone who agrees to take responsibility for your loan if you stop paying on it.
If you take this route, it’s important to choose a
co-signer that already has an excellent credit history. This way, you can still be approved for the lease you’re seeking, and you can build up your credit history.
However, because this person is agreeing to help you, it’s important that you keep paying on your loan. Should you default on your payments, your cosigner’s credit will suffer.
Have a Family Member Add You To Their Account
If you don’t have to apply for a lease, but you’d still like to build your credit, ask a family member to add you as an authorized user on their account. Being a fully authorized user of a financially responsible person’s account will help you build credit. Be sure that your authorization is tied to your social security number. This way, you can ensure that your smart spending will build your credit.
Part of what makes this option ideal is the fact that you don’t have to make any purchases. As long as the owner of the account pays their bills, you will build credit.
Apply for a Beginner’s Credit Card
Many credit card companies offer cards designed to help consumers build their secured credit card.
They’re ideal for people who are starting out because they have low credit card limit, higher interest rates, and an annual fee to establish their credit card balance. Because of these features, new credit card users are more likely to spend responsibly.
For full-time college students, a student credit card may be a benefit. On top of being designed for credit beginners, these cards are upgraded to ‘regular’ credit cards after the student graduates, as the credit limit increases and the monthly payments. Like standard beginner cards, the interest rates are high and limits are low, but they’re a great starting point to learn credit from scratch.
When starting your credit journey, it’s in your best interest not to overwhelm yourself. While having more than one line of credit might build your credit faster, it can hurt your progress without any challenge. Hard credit inquiries tend to drop your score at first, and it takes time to build the score back up. Additionally, falling behind on one card payment isn’t as bad as falling behind on two. Besides that, you need to find a secured credit card company before you open credit accounts.
Look Into Credit-Building Loans
Small personal loans will also help a new consumer improve their credit score. The interest for these loans can be somewhat high, while the limits are relatively low. However, if you take out a personal loan and pay it back on time, your credit score will increase.
There is a variety of lenders that specialize in credit-building loans, so it’s a good idea to shop around.
Some lenders offer loans with fair interest rates and higher limits, while others have lower limits and higher interest. The terms are usually short, so you can pay the loan back in a reasonable span of time.
Special Note on Student Loans
If you’re considering student loans to pay for college, making payments on time will improve your score. However, this process takes a number of years. Additionally, if you fall behind on your student loan payments,
you may end up hurting your credit score.
Student loans often have high interest rates, so it’s not uncommon for borrowers to spend decades paying their loans back. Falling behind or defaulting can be detrimental to credit scores, so it’s crucial to choose student loans carefully.
It’s challenging to build credit when you’re starting out, even though the needs of adulthood don’t slow down as a result. Take some time to look into your credit-building options so that you have a clear understanding of what steps you can take. By building your credit over time, you can take advantage of the benefits sooner rather than later.
If you’re still unsure which credit-building route to take, speak to a professional at your banking institution or talk to a credit counselor.
Get an Auto Loan
If you’re still new to the world of loans, you might not know what an auto loan is. An auto loan is a loan application from the bank that allows you to buy a car. It will allow you to take out money in order to pay for your lease payments, insurance, and other expenses related to owning the car.
It will also help establish your credit history if you use it wisely. If you use it responsibly, an auto loan can also help your credit score rise quickly over time as well. If this happens, it will make it easier for companies like leasing offices and banks to give loans and approve leases for people who don’t have a lot of experience in the world of lending and borrowing money before.
Before applying for an auto loan, though, it’s important to do your research and find a company that will give you the best deal. The car you want might not be the same as the one they want to loan you. This means you might have to pay more than what you want to. It’s important to shop around and find a company that will work with your budget and the car you want.
Use Money Management Tools
Many people are aware of money management tools, but not everyone knows how to use them properly. The problem is that many people think these tools are only for tracking their finances and remind on-time payments, but they can also be used for credit monitoring as well. Many people don’t realize this, so they don’t use them at all.
A lot of companies offer these services as well, including credit monitoring services and even the FICO score itself. These services can be very helpful if you don’t know how to track your own finances effectively or if you just need some extra help staying on top of things financially.
Pay Your Bills on Time Every Month
It’s important to pay your bills on time every month or within the time frame. If you’re not paying your bills on time or make delinquent payments, you might not have enough money to pay for something you want. Bills can pile up quickly if you don’t pay them on time. Not only that, but you may not have enough money to pay your bills on time. Even if you do have the money, it’s often difficult to manage the entire payment process.
Pay your bills on time every month, and then make sure to pay any extra payments when they come due. It may be a good idea to automate your bill payments as well, so that you don’t forget to do them at all. Automatic payments can help you, and you can use a calendar reminder as the payment reminder.
If you pay your monthly bills for a period of time, you can build a positive payment history that will lead you to an excellent credit score.
