Five Practical Methods To Build Credit

It can be really difficult to build credit. Whether you are just starting out or had some bad experiences with credit cards that left you with less than stellar credit, you are probably running into the same issue – to be able to get credit you have to have good credit. This can leave you feeling frustrated, as it can even limit your ability to rent an apartment. Don’t get too worried, however. There are a few tried and true ways that you can establish credit quickly and be able to qualify for great terms and rates on loans. If you’re in this situation, read on and pick one of these methods to try so that you can soon have great credit.

1. Sign-up for a credit builder loan –

These are not very common, but due to how many people have problems with their credit, more and more people are hearing about them as an option to help build credit. It’s a loan from a bank or other lender, but the money that is loaned to you will be held in a special account that you won’t be able to access until after you have paid the whole loan back. It’s almost like a forced savings account, but your payments will be reported and will go on your credit history. Small, local banks are the most likely to offer this sort of program, although you may be able to find a few options online.

2. Signup for a secured credit card –

Most likely the best option for anyone who doesn’t have a credit score at all, secured credit cards offer no risk to the bank or lender who decides to work with you. You have to put down a cash deposit in the amount of the credit limit on the card that you signup for. You can use this card the same way that you would any regular card. Buying things, making payments, and paying interest if you leave a balance on your card all work the same as a regular credit card. The difference is the cash deposit that you made to open it. You’ll get this money back when you close the account, but if you ever default then the lender has that money to protect themselves. These types of cards aren’t meant to be used for your whole life – they’re simply a great way to build credit from scratch. After you have done that, close the card and apply for one with a better rate. Always make sure that the secured credit card you sign up for will report to all three major credit reporting agencies.

3. Pay rent and get credit –

There are certain rent-reporting services that will add your rental bill to your credit report, meaning that all of your payments will show up on your report. While not all credit scores will include these payment histories, sometimes they are enough to make a big difference in getting your next loan.

4. Ask a co-signer for help –

This is often what teenagers will do to begin building their credit. Signing up for a car loan or a credit card with a parent is a great way to get experience, build a credit score, and not experience a whole lot of risk. It’s also possible to get a co-signer as an adult, too, but the co-signer always needs to be aware of the danger of having to repay the loan themselves. Remember that anything you sign you will be responsible for, even if you are just helping out a friend or a family member.

5. Signup as an authorized user on a credit card –

If a family member is willing to let you become an authorized user on their credit card, you can build your credit history this way. However, you won’t be obligated to pay for any purchases, but just having your name on the card can help you. Make sure that all three credit reporting agencies will receive information about you as the signer, or there is really no reason to even do this. Make sure you are willing to pay what you own on the card before becoming an authorized signer on a family member or friend’s card, even though you are technically not required to do so.

Building a great credit score takes time, a lot of patience, and the responsibility of paying your bill on time each month. Be prepared to take a minimum of six months for this process to work, no matter which method you choose. Always pay your whole payment on time, especially with utility bills and your rent. Any bills that aren’t paid in full will work against you. Don’t use all of your available credit on a credit card, and limit how many new accounts you open. By following these tips you’re on your way to a great credit score.

About the author:

Steven is a professional personal finance writer. He is a contributor for several professional finance sites. His work has been mentioned in and linked to from, USA Today, The Huffington Post, Benzinga, Investopedia and many other publications. He also has his own personal finance blog, Credit Zeal, where you can follow him.