How to Build Credit the Right Way the First Time
Sooner or later the condition of your credit reports and scores is going to impact your life, it’s unavoidable. Want to lease an apartment? Your credit matters. Want to take out a loan to purchase a vehicle? Your credit matters. Want to take advantage of a better cell phone plan? You guessed it, your credit matters.
Of course, building credit for the first time can be tricky, especially if you are confused about how to begin the process. When your credit is a blank slate many lenders may be hesitant to do business with you. Apply for the wrong types of accounts and you could even find yourself in the frustrating situation of having your applications denied. It should be this difficult, and building your credit can be a breeze.
Starter Credit Cards
No one enjoys having their credit card applications denied. However, if you are not careful then this is exactly what could happen if you begin to apply for your first credit cards indiscriminately. Just because a credit card has a great introductory rate offer or an attractive rewards program does not mean that you should apply for the account, at least not yet.
As mentioned above, many lenders do not want to be your credit guinea pig or a trailblazer. You may have trouble being approved for a prime credit card offer until you have a track record that proves you already know how to manage your credit obligations responsibly. Here is where a secured credit card might help you.
Secured credit cards offer a great option for many consumers who want to establish a credit history for the first time. When you open a secured credit card you are typically required to make a deposit with the issuing bank close to or equal to the credit limit you will receive on the account. For example, if you make a $700 deposit your secured card will feature a $700 credit limit.
Because of the low risk the bank is taking by issuing you a secured account, secured cards often make great starter credit cards. Prove that you can use the account responsibly (on-time payments, paying off your balance in full each month, etc.) and you may be eligible to graduate up to a traditional credit card in the not-so-distant future. Then you get your deposit back and a higher credit limit.
Additionally, remember that you can also ask a friend or family member to help you establish credit by adding you as an authorized user to an existing, well managed, and well-aged credit card account. If the credit card issuer reports the account to the 3 credit bureaus, as many of them do, then you could potentially jump start your credit building process when that previously established account shows up on your credit reports.
Starter Loans
A personal loan can be another great way to build credit. However, if you have little to no credit already established then qualifying for such a loan can again prove to be complicated, or expensive. Yet just like there is an appropriate “starter” credit card option, there also exists a personal loan which offers easier qualification standards – the credit builder loan.
Many local credit unions offer “credit builder loans” to help their members build credit, hence the name. When a credit union approves an application for this type of account the borrowed funds are not actually released to the member immediately. Instead, the funds are held in a savings account, not to be released until the member completes the loan payments.
Once the final payment has been received the credit union will release the funds plus any interest earned to the borrower. Like secured credit cards, credit builder loans are designed so that the bank takes on little risk. As a result, you will likely be able to qualify for the account even if you have no prior credit history.
or later the condition of your credit reports and scores is going to impact your life, it’s unavoidable. Want to lease an apartment? Your credit matters. Want to take out a loan to purchase a vehicle? Your credit matters. Want to take advantage of a better cell phone plan? You guessed it, your credit matters.
Of course, building credit for the first time can be tricky, especially if you are confused about how to begin the process. When your credit is a blank slate many lenders may be hesitant to do business with you. Apply for the wrong types of accounts and you could even find yourself in the frustrating situation of having your applications denied. It should be this difficult, and building your credit can be a breeze.
Starter Credit Cards
No one enjoys having their credit card applications denied. However, if you are not careful then this is exactly what could happen if you begin to apply for your first credit cards indiscriminately. Just because a credit card has a great introductory rate offer or an attractive rewards program does not mean that you should apply for the account, at least not yet.
As mentioned above, many lenders do not want to be your credit guinea pig or a trailblazer. You may have trouble being approved for a prime credit card offer until you have a track record that proves you already know how to manage your credit obligations responsibly. Here is where a secured credit card might help you.
Secured credit cards offer a great option for many consumers who want to establish a credit history for the first time. When you open a secured credit card you are typically required to make a deposit with the issuing bank close to or equal to the credit limit you will receive on the account. For example, if you make a $700 deposit your secured card will feature a $700 credit limit.
Because of the low risk the bank is taking by issuing you a secured account, secured cards often make great starter credit cards. Prove that you can use the account responsibly (on-time payments, paying off your balance in full each month, etc.) and you may be eligible to graduate up to a traditional credit card in the not-so-distant future. Then you get your deposit back and a higher credit limit.
Additionally, remember that you can also ask a friend or family member to help you establish credit by adding you as an authorized user to an existing, well managed, and well-aged credit card account. If the credit card issuer reports the account to the 3 credit bureaus, as many of them do, then you could potentially jump start your credit building process when that previously established account shows up on your credit reports.
Starter Loans
A personal loan can be another great way to build credit. However, if you have little to no credit already established then qualifying for such a loan can again prove to be complicated, or expensive. Yet just like there is an appropriate “starter” credit card option, there also exists a personal loan which offers easier qualification standards – the credit builder loan.
Many local credit unions offer “credit builder loans” to help their members build credit, hence the name. When a credit union approves an application for this type of account the borrowed funds are not actually released to the member immediately. Instead, the funds are held in a savings account, not to be released until the member completes the loan payments.
Once the final payment has been received the credit union will release the funds plus any interest earned to the borrower. Like secured credit cards, credit builder loans are designed so that the bank takes on little risk. As a result, you will likely be able to qualify for the account even if you have no prior credit history.