Your credit score is very important as far as your financial life is concerned. If you have a good credit score it becomes easier for you to get a loan. However, if you don’t have a credit history, you may have a hard time in this direction.
But the problem is how can you show the bank that you are capable of repaying the loan when you don’t have any credit history in the first place? Well, there are lots of things that you can do.
In this post, we will take you through ways to build your credit.
1. Get a secured credit card
If you do not have any history with a credit score, you will have to take the help of a secured credit card. A secured credit card is followed by the cash you deposit upfront. The amount of cash deposited by you will be the limit of the credit card.
However, you can still use this credit card like any other card. It has all the features of a normal credit card. You can still buy things, make payments as and when you are required, shopping, gaming, etc. Moreover, you incur interest when you don’t pay back the full amount.
A secured credit card is not meant to be used forever. It is a tactic devised by banks to help you qualify for an unsecured credit card. There are a lot of benefits of using an unsecured credit card like, you don’t have any limit like the secured one.
2. Installment loans to build credit
Installment loans are a type of loan where you are required to pay an equal amount of money for some fixed period until the loan is fully repaid. Many people have the question, “Will an installment loan help my credit?”. Well, the short answer is yes. Let’s see how.
An installment loan can drastically improve your credit score if you pay your installments on time. The credit score is strongly affected by your payment history. If you have a history of repaying your loans on time, it would help you boost your score.
Many people ask an incomplete question like “Do loans help build credit?” instead your question should be “Do installment loans help build credit?” and as we have already seen you can use installment loans to improve credit score.
Well, then you can ask, “Are installment loans good?” Definitely. With installment loans, you will not only improve your credit but will also get things done for which you took loans. However, you should always find out about the best installment loans to build credit. Not all loans are good!
3. Get a secured loan
A secured loan is also a good way to build your credit score. In this scenario, the money you asked for is held in an account and will be released for you only when you repay that amount. It is a type of forced saving: you will have to first arrange the amount of money you want for a loan. Your performance in this scheme is then reported to the credit bureau. These types of loans are mostly offered by community banks.
However, if you already have money deposited in some bank or credit union, you can ask for a secured loan from them. In this case, the collateral is the money in your deposit account. However, you should take care that the interest rate will be higher as compared to the interest rate paid by your bank for a deposit account.
4. Make use of a co-signer
Co-signer is another way to climb up the ladder of credit score. A co-signer is a person who is responsible for the repayment of the full loan amount, in case you default on your loan. It is important in this case that you and the co-signer should have good communication and understanding. You are taking a loan on behalf of someone. In case, you are unable to repay the loan, the burden will be on the shoulders of the co-signer. This is a good way to prove your worth to the credit agencies.
5. Become an authorized user
If someone in your family or friend wants to make you their authorized user, then this is a golden chance to build your credit score. This way the payment history of the person is linked with your account as well. This way you get a good payment proof without much effort. To be an authorized user, you don’t need to have a credit card, you don’t even need to use it.
However, you should be careful in this case. In case the person defaults in his/her payment, your history is also affected by that. You should be an authorized user for only those people who have a proven record of maintaining a good credit score.
You should also agree as to when and under what circumstances you would use the card. When it comes to financials a proper understanding goes a long way.
To sum up
In the end, I would like to say that it is possible to build a good credit score even if you are new in this game. A good credit score will open doors for many opportunities like qualifying for best interest rates and terms but in case of bad credit, you can get a personal loan at Your Own Funding as it matches you with lenders online and helps you to give a financial boost. Apply for a loan by filling out a handy application form to get financial help from lenders within 24 hours or less.