The question of how to create credit can be daunting for those who are new to finance. Without a credit account, you may feel like you are in a bind. Lenders are likely to turn you down because of your lack of credit. Good news is that you can begin building credit as early as 18 years old! If you follow these tips, it is possible to qualify for the best interest rate.
Timely payment of bills
A list of all your accounts is a great way to build credit and pay bills on time. Include the lender's minimum monthly payment and the amount owed. You can then divide this list according to whether you are paying manually or automatically. You can change the due date, if you are able, or use an auto-pay system. You can even designate an amount to debit automatically.
Your credit score will be affected by your payment history. More than thirty percent of your credit score depends on it. So make sure to pay your bills on-time. An unpaid bill can cause a late charge or a negative report. Credit reports will likely include information about your credit cards, loans, and sometimes utility and mobile phone accounts. A good way to build credit is to pay all bills on time.
Multiple credit cards
Having several credit cards may seem like a great idea, but it can also get you into financial trouble. While multiple cards can make it easier to spend, this can also lead to financial difficulties and significant debt. If you are planning to use multiple cards for reward points, either avoid them altogether or stick to one. One card is the best. Pay it off as soon a possible. This will allow to you to keep track and reduce your spending.
While credit cards may help improve your credit score in the long-term, having too many can actually make it worse. You should limit your credit card usage to those cards that you can afford and only make the minimum monthly payments. Having multiple credit cards will also raise your credit utilization ratio, so make sure you use them wisely. It's best to have two or three credit cards that are appropriate for your credit profile. Your credit score will be better if your payments are tracked.
Credit limit increase
If you recently finished college or earned more income, the best time for you to ask for an increase on your credit limit. An increase in your credit limit can make it easier for you to make smaller purchases. This will allow you to increase your spending power. The process of asking for a raise is simpler than getting a new debit card. An increase can also be requested if you recently transferred to a higher-paying position or have received a raise.
After you have maintained good payment records, you should contact your creditor to request an upgrade. While you wait, tell your credit card issuer why you should have a higher credit limit. Tell your credit card company if you have recently had a salary increase. Also, mention your outstanding payment history. High credit limits make you more attractive to creditors. It is important to remember that you don't have to pay any interest or fees if your credit limit has been increased in order to build credit.
Getting a credit builder loan
A credit builder loan can help you establish credit and improve credit scores. These loans are deposited into your account and require monthly repayments towards the final payment. Your credit score will rise if you make timely payments to the three major credit agencies. You will lose your credit score if you miss payments. Credit builders loans can be obtained at your bank, credit union, online lender, or other financial institution.
A credit builder loan does NOT require a formal, traditional credit check. However, some lenders will still use your banking history (provided through ChexSystems), in order to determine your eligibility. A bounced check could also affect your loan approval. Credit unions often offer these loans but you need to join to be eligible. A small membership fee is required and sometimes a donation to a partner charity.