Having a not-so-stellar credit score can make life difficult if you are trying to do something like move into a new apartment or make a large purchase. Even establishing a solid credit history can be difficult if your credit score prevents you from doing things like opening a credit card. But building your credit does not have to be difficult. Here are few tips to help you build your credit.
The experienced financial advisors at The Templeton Group of Cornerstone Financial Management can help you create a plan to work toward your financial goals. Contact us today.
1. Get a Credit Card
If you have no credit history, a secured credit card, store credit card, or student credit card is a great option to start building your credit.
A cash deposit is required for a secured credit card. If you miss a payment you may lose your deposit. But a secured credit card from a company that reports to the three standard credit bureaus can be used like any other credit card. When you close your account, you can get your deposit back if you haven’t missed a payment. This is a great way to start building your credit history so you can eventually apply for an unsecured credit card.
Store credit cards or student credit cards are also worth considering if you’re eligible for either. While store credit cards are only usable at select stores and tend to have high interest rates, they can still provide your credit score a nice boost if you make your payments on time. Similarly, a student credit card can be a great option if you are eligible for one, but these cards tend to have high interest rates coupled with lower credit limits.
2. Become an Authorized User or Co-Signer
If your parents or other family members have decent credit, they may be willing to approve you as an authorized user on their card or open a credit card account and add you as a co-signer. Either option can help you build your credit.
If you intend become an authorized user, make sure your credit card company reports authorized user activity. For both co-signers and authorized users, remember that low credit utilization—keeping a high percentage of unused available credit—will improve your credit score.
3. Get a Loan
A secured loan or a credit-builder loan is another option for establishing credit. Secured loans use money deposited at a credit union or bank as collateral. They also tend to have a higher interest rate than your bank account.
A credit-builder loan is designed to help you improve your credit. The borrowed money is usually held in an account at a bank or credit union until you repay the loan, at which point you receive the money. It is basically a savings plan that reports your loan payments to credit bureaus.
4. Get Your Credit Report
Be sure to find out what is in your current credit report. Credit reports are typically treated as accurate reflections of your trustworthiness as a borrower, but they can often contain errors. You may be able to dispute these errors to improve your credit history. While you may not find any inaccuracies, the Federal Trade Commission has estimated that 1 in 4 customers find an error on their credit report.
5. Pay Your Bills on Time
Paying your bills on time should always be your goal. While not all credit scores reflect paid bills, for those that do simply paying your bills on time can help establish a positive credit history. These bills can include your cell phone bill, utilities and even your rental payments.
Companies are not required to report your payment information, however, so you should find out whether your bill payments will end up on your credit history. For renters, if your landlord is not reporting your payments, consider using a rent-reporting service.
6. Once You Have Good Credit, Maintain It
Using the above credit building strategies, you may be able to establish a positive credit history and achieve a decent credit score. Once you have done so, however, it is important to maintain good habits that improve your score over time.
Always make your payments on time for all of your bills, not just your credit card accounts. Unpaid bills can be sold to collection agencies and hurt your score. Additionally, try to keep your credit utilization low to get the most benefit for your credit score.
Avoid closing your credit card accounts unnecessarily, since doing so can affect your score. On the other hand, avoid having multiple applications for credit accounts close in time since each application can temporarily reduce your credit score.
Work with a Financial Advisor
The dedicated financial advisors at The Templeton Group are here to build long-lasting relationships with our clients. We will work closely with you to understand your goals and objectives, time horizon, and risk tolerance, so we can create a detailed financial plan. Contact us today to request an initial consultation.