How To Build Credit – A Beginners Guide on How to Build Credit When You’ve Got None.

How To Build Credit

How to build credit? When you have no credit history it’s difficult to qualify for a loan for a large appliance, a car or a home.

With good credit, you can easily get a credit card or loan, get it at the best interest rate, get that job you applied for and get a good deal on insurance and cell phones. Building good credit takes time. Keep reading to find out how.

How to Build Credit Step 1 -
Open Up a Savings or Checking Account.

Lending institutions like to see the regular use of savings and checking accounts. To them it represents signs of financial stability. The sooner you start the better as this builds up a solid financial history.

 
Using a checking account and regularly saving – even putting a small amount away each week – shows the banks that you are responsible and capable with money.

How to Build Credit Step 2 – Get a Secured Credit Card.

The majority of lenders not only like to see a history of savings but also a history of credit repayment. You can satisfy this criterion by using the savings you’ve built up to acquire a secured credit card. You can organise one with the bank you’ve now established a relationship with.

They’ll require you to put a deposit down for the amount you want as a credit limit. So if you want a credit card with a $600 limit you would be required to leave a $600 security deposit with them.

You use it exactly the same way as a regular visa or mastercard, but before you sign anything make sure to ask them to whom they report your usage of the credit card.

You want them to report to the 3 credit reporting agencies ie Equifax, Experian, and Trans Union. This is the reason you’re doing this in the first place – to build a credit history – so make sure they report to the big 3.

How to Build Credit Step 3 – Apply For a Small Loan.

Once you’ve developed some credit history with your secured credit card, you can try applying for a small loan. In order to get a high credit score you want to have both instalment credit (loan repayments) and revolving credit (lines of credit and credit cards).

Work out how much you could realistically afford to repay out of your earnings and borrow a small amount for say a large appliance. Be sure to pay it by the due date every month.

One late payment and you’ve blown your chance of getting that high credit score you’ve been working methodically to get so do not borrow any more than you can comfortably afford to pay back.

Setting up an automatic payment system with your financial institution is a good idea as it will ensure you’re never late with a repayment.

This How to Build Credit guide has covered the basics on how to build a credit history, but it is an ongoing process. Having good credit and a high credit score makes it so much easier to get personal and housing loans and usually at a lower interest rate.

A lower interest rate can save you thousands of dollars over the course of the loan especially if it’s a large personal loan or mortgage so it is worth putting in the effort of building good credit.