How to create credit – NerdWallet

Creating credit can be difficult. If you do not have a credit history, it is difficult to get a loan, credit card or even an apartment.

But how are you going to show a responsible repayment history if no one gives you credit from the beginning?

  • If your goal is to get a credit card, you could start with a secure credit card or subscription card or apply to become one. authorized user on another person’s card.

  • If you want to create credit without credit card, you can try a credit line, a secured loan or a subscribed loan. There are also ways to use rent, telephone and utility payments to build credit. Some of these ways are free, others are free.

Here’s a look at some of the credit cards and how to use them to earn one good credit score.

Get a secure credit card

If you are building your credit score from scratch, you will probably need to start with one secured credit card. A secure card is backed up by a cash deposit in advance. The deposit amount is usually the same as your credit limit. The minimum and maximum amount you can deposit varies depending on the card. Many cards require a minimum deposit of $ 200. Some companies like Avant, Deserve, Petal and Jasper are now offering alternative credit cards that do not need a guarantee.

You will use the card like any other credit card: Buy things, make a payment on or before the expiration date, you will be charged interest if you do not pay your balance in full. You will get your deposit back when you close the account.

Secure credit cards are not meant to be used forever. The purpose of a secure card is to create enough credit for you to qualify for an unsecured card – a card with no deposit and better benefits. Choose a secure card with a low annual charge and make sure it reports payment data to everyone three credit bureaus, Equifax, Experian and TransUnion. Your credit score is generated using information collected in your credit reports. The cards listed in all three offices allow you to create a more complete credit history.

Get a credit card product or a secured loan

ONE credit loan is exactly what it sounds like – its sole purpose is to help people build credit.

Usually, the money you borrow is kept by the lender in an account and is not released to you until the loan is repaid. It’s a kind of forced savings plan and your payments are reported to credit bureaus. These loans are most often offered by credit unions or community banks. Self offers them online as it does SeedFi.

Kikoff offers a $ 500 credit line that is strictly designed to be a credit building tool.

Another option: If you have money deposited in a bank or credit union, ask them for a secured loan to build credit. With these, the collateral is money in your account or on the deposit certificate. The interest rate is usually a little higher than the interest rate you earn on the account, but it can be significantly lower than your other options.

It is also possible to get a loan or an unsecured credit card using a co-signer. But rest assured that you and the co-signer understand that the co-signer is ready for the full amount owed if you do not pay.

Become an authorized user

A family member or other important person may be willing to add you as authorized user on his / her card. This will add the payment history of this card to your credit records, so you will want a key user with a long history to pay on time. Additionally, adding as an authorized user can reduce the time it takes to create one FICO score. It can be especially useful for a young person just starting out to create credit.

You do not need to use – or even own – a credit card at all to benefit from being an authorized user.

Ask the main cardholder to find out if the card issuer is reporting authorized user activity to credit bureaus. This activity is generally mentioned, but you should make sure that otherwise, your credit-building efforts may be wasted.

You will need to agree on if and how you will use the card before you can be added as an authorized user and be prepared to pay your share if this is the deal you are making.

Get credit for the bills you pay

Rental reporting services such as Rental Kharma and LevelCredit, take a bill you already pay and place it on your credit report, helping to build a positive track record of timely payments. Not every credit score takes these payments into account, but some do, and that may be enough to get a loan or credit card that firmly establishes your credit history for all lenders.

Experian Boost offers a way to reflect your mobile phone and utility bills in your credit report at this credit bureau. Please note that the result is limited to your credit report with Experian – and any credit scores calculated on it.

Practice good credit habits

To have a FICO rating, you need at least one account that has been open for six months or more and at least one creditor reporting your activity to the credit bureaus in the last six months. ONE VantageScorefrom FICO’s biggest competitor, can be created faster.

Practice these good credit habits to build your score:

  • Try to make your payments on time and pay at least the minimum if you can. Paying credit card or loan payments on time is one of the most important things you can do to increase your rating. If you can pay more than the minimum, this is also useful for your rating.

  • If you use credit cards, keep your usage low Usage is the percentage of your credit limit you use. We recommend that you keep credit use below 30% on all cards whenever possible. The lower your utilization, the better it is for your score.

  • Avoid applying for multiple credit bills nearby; Credit applications can cause a small, temporary drop in your score. Multiple applications can cause significant damage. NerdWallet recommends splitting applications by about six months, if you can, and doing some research best credit card for your needs before you apply. Keep in mind that multiple car loan or mortgage loan applications will be grouped into one as “rate the markets. “

  • Keep credit card accounts open. Unless you have a compelling reason to close an account, such as a high annual fee or poor customer service, consider keeping it open. You can also explore downgrading or transferring your credit line to another card. Closing an account can damage the use of credit and reduce the average age of your account.

Check your credit scores and reports

A credit report is a record of how you used your credit in the past. Your credit score predicts how you will handle credit in the future, using the information in your credit reports. You’ll want to watch both for bug fixes and to see your creditworthiness efforts pay off.

Find out how your credit score is

See your free score and the factors that affect it, as well as information on ways to keep building.

Many credit card issuers print FICO scores on their monthly customer statements and also allow online access. Some card issuers offer free ratings to anyone, cardholder or not.

Ask for your credit reports and check each one for errors and discrepancies. Until December 2022, you can check your reports for free every week using AnnualCreditReport.com. Challenge any credit report errors you find that may be lowering your score.

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