How To Build Good Credit From Scratch?

Having a good credit score can help you get approved for a mortgage, a car loan, or a credit card with high-interest rates and fees. Having poor credit, on the other hand, can mean you will pay higher interest rates or have to pay more for car insurance. 

But what if you don’t have any credit at all? How do you build one, especially if you have no credit history that backs you up?

Fortunately, there are various ways you can go over this problem. Here are some of them. 

Apply For A Secured Credit Card

A secured credit card is a pretty good deal for people with no or bad credit scores. If you have a low score, you probably don’t have much chance of getting approved for an unsecured credit card. A secured credit card is a solution because you put down a deposit when you apply.

A secured credit card is an unsecured credit card with a security deposit. The security deposit establishes your credit limit. If you make your payments on time and in full each month, your credit score will improve over time, and you can eventually get a regular credit card.

Using a secured credit card is simple, as it works similarly with other standard credit cards. Hence, you still need to pay your balances before their due so that your credit score will have a good start. Keep in mind that secured credit cards are not meant to be used forever. Their intended purpose is for people to get enough credit to qualify for unsecured credit cards. 

Get A Credit-Builder Loan

A credit-builder loan is a loan that gives you access to a credit line you can use without actually charging anything to your card. If you have zero credit or a low credit limit, this may be a great way to build upon your credit by paying your bills on time. You can use a credit-builder loan to pay your existing bills, such as utilities, rent, and other monthly payments that you make, or you can use it to make a large purchase and pay it off over time. Either way, the benefits are the same: you get access to a credit line to help you establish a good credit history.

Alternatively, you can also pursue a secured loan for credit-building. This route is desirable if you have money deposited in a credit union or bank. The money becomes the collateral for the loan, which you can use for purchases. 

Get A Co-Signer

Have you ever tried to get a credit card on your own and been turned down? It’s not uncommon. If you have no credit history, or if you have a history of missed payments, you might have difficulty getting approved for your own credit card. A co-signer can help you to achieve the credit score you need to get a credit card. The latter is a person who agrees to take on some of the responsibility for making payments on a loan or a credit card if you fail to make payments.

Be An Authorized User

If you have family members or relatives who own credit cards, you can ask them to include you as an authorized user. Once you become one, the payment history of the card you are in will reflect on your credit files. Therefore, it is essential that you will be under a person who has excellent credit records and payment history. Furthermore, it is easier for FICO to generate a credit score for those individuals who are authorized to use other people’s credit cards. 

The good thing about being an authorized user is that you don’t need to possess a card. You don’t need to use it, as a matter of fact, before you can get its benefits. 

Becoming an authorized user is not that simple, though. After all, you will have to seek permission and approval, which do not come smoothly since this matter involves credit card usage. Agreements must be reached before you’ll get listed.

Establish A Good Credit Habit

Credit scores are more than just three digits that appear on a credit report. They are a snapshot of your financial life and how you use credit. Whether you have excellent or poor credit, you can improve your credit score by practicing good credit habits. 

While it’s evident that good credit is a crucial component to financial success, it isn’t always easy to develop good credit habits. The best way to start is to make a plan for your credit, tracking what you currently owe and taking steps to pay down your debt. You should also take note of your spending habits and how they affect your ability to pay your bills on time. 

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