These days, a solid credit history is necessary for nearly every facet of life. Besides helping you qualify for a traditional loan (i.e. home or auto), it can determine what rate you get for your auto insurance, as well as play a part in whether or not you get a job. If your credit history is limited, you could be in for a roller coaster ride full of headaches and false hopes.
How Beginners Can Build Credit
Having a limited credit history is almost as bad as having a blemished one. Fortunately, there are some great options available that will help you build up your credit and help you establish a solid payment record.
To help give you a hand, 3 different credit building methods listed are listed below. They are perfect for beginners and are some of the easiest sources of credit to obtain. Just take a look at each one to learn how it can help you solidify your credit profile and establish a solid credit score!
Method #1 Get a Secured Credit Card
Secured credit cards are excellent for people new to credit. They work just like a regular credit card, except for one small twist: a small deposit is required to open your account. The deposit amount is up to you and will serve as your credit limit on the card.
Why do secured cards require a deposit? The answer is simple – if you ever default on your account, the deposit will cover the remaining balance. It lessens the risk of the credit card company, which is why the approval rate for these cards is close to 100%.
Another cool perk of secured credit cards is that many of the companies who issue them place your deposit into an account that earns interest. That interest is then paid back to you. Its not much to boast about, but its nice to know that your initial deposit is actively earning you money.
At the end of the day when the chips seem like theyre down, going with a secured card is a great decision. Once you establish your credit, you can finally graduate to a better card with less restrictions and more favorable terms.
Method #2 Obtain a Small Personal Loan
Another great way to help establish your credit is to take out a small personal loan from a local bank. The loan should be small and easy for you to pay off quickly. A good rule of thumb here would be $500 or less. The smaller the amount you choose, the easier it will be for the bank to approve.
As you pay on your loan, most banks will report your payments to the 3 main credit bureaus. This is critical in helping you establish a positive mark on your credit report, so always make sure the loan you receive will be reported.
One thing to remember: Keep the loan amount small, even if youre approved for a larger amount. Your goal is to build up a strong credit profile and not to get in over your head right from the start.
Method #3 Let a Retailer Give You Credit
Credit cards from major retailers are some of the easiest lines of credit to open for those with little to no credit. Its a great way to establish your credit history and show that youre responsible enough to handle an unsecured line of credit.
The only downfall with many store cards is the high interest rates that come with them. If you get approved for a store credit card, always make sure that you charge no more than you can afford to pay off every month. Doing so will continue to add more positive marks on your report, helping your score go up in the process.
One thing to pay attention to when applying for these types of cards: Every store has their own set of rules and guidelines, so a little research will go a long way to ensure that your application gets approved at the store of your choice.
Start Building Your Credit Today
Once you establish credit, its best to keep the ball rolling. That means keeping a close eye on all of your active accounts to keep them in good standing. Do that consistently every single month and you will be well on your way to creating a squeaky clean credit history that will open up more doors for you in the future!
This article is copyright protected.