Having a good credit score is such an important thing, but yet it’s something many people struggle to achieve.
A lot of times we think about people not having a good credit score because of past problems, such as bankruptcies or unpaid bills. That’s not always the problem, however. Not having a credit history can be just as bad as having a negative history.
A bad credit score can cause insurance companies, cell phone providers and other businesses to either not provide you with services, or to charge you higher rates and fees according to Ben Luthi of Remitly.
There are different reasons you might not have any credit history. You may be young and just starting out, or perhaps you’ve moved to the U.S. from another country. You may also be in the midst of a transition in your life, such as a divorce.
The following are some smart, strategic ways to work on building your credit.
Credit cards can be a simple way to start building credit, but you have to be very careful with them. You might be approved for something like a store credit card or a student credit card if you don’t have any history. You might also be able to get a secured credit card, which does require a cash deposit.
These kinds of cards will typically have low limits and high interest rates, but they can help you start establishing payment history.
Another option if you’re young and trying to build your credit is to see if your parents will let you be an authorized user on their cards.
Using the rent you pay can be a great way to build your credit, but not all landlords report to credit bureaus.
There is an option, and that’s to use a service like RentTrack. RentTrack is a service that allows you to set up an account and pay your rent through RentTrack, and then on-time payments are reported to all three credit bureaus. Your landlord doesn’t have to be enrolled in this service for reporting.
Credit Builder Loans
There are specific loans available for people whose goal is to build credit.
When you get a credit builder loan, once you borrow the money it’s put into a savings account in your name. You then make monthly payments, and you have access to the money in that account once you pay your loan in full.
You can get these loans in small amounts and make small monthly payments, so you’re not overextending yourself.
Finally, you do want to keep your credit utilization ratio low once you start getting sources of credit. This means you’re not using too much of the credit available to you. You also want to start adding different types of credit into the mix. Typically lenders want to see that you’re able to balance difference types of accounts, such as revolving and installment accounts.
Even so, when you are building your credit, don’t apply for too much at once, because the inquiries can actually lower your score.