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How to build credit?

Make sure when you get your first credit card that the card is secured. One thing you should know is that there are other ways to build credit than with a credit card and adjustments on your credit report can take 1 to 2 months.

How to build credit?

Building credit does not happen overnight. Building credit is a long-term investment, and adjustments on your credit report can take 30-60 days. There’s a number of ways you can build credit, with or without a credit card.

How to build credit with a credit card?

  • Open your first credit card account: Open your first credit card to start building history. You can build a reliable profile of credit and payments by making small charges that you can pay off easily in full amount and pay your balance in full every month. 
  • Get a secured credit card: A secured credit card is a good option if you have little credit history or a negative one. The limit on a secured card is usually the amount in the account or a percentage of it, and secured cards are usually tied to a savings account. You use it like a regular credit card—by making responsible purchases, keeping your balance low, and paying on time every month. Although secured credit cards are not reported by all lenders to credit reporting companies, the lenders might be willing to convert the card into a traditional credit card after a certain period of time. You should ask these questions prior to your decision whether to open any account. 
  • Joint account or become an authorized user: For some with no credit history, they might have trouble owning a credit card in the beginning. A solution for this is to become an authorized user in someone else’s account, or to open a joint account with someone who has a good credit history. Often, parents add their child to their existing credit card account, or open a joint credit card, to boost their child’s credit history. However, there is increased liability, such as if one payment is late, they will both be affected and have an impacted credit. 
  • Requesting a limit increase: You may ask for a limit increase on your credit card after paying your debt and decreasing your utilization rate. Credit utilization ratio is the ratio between the total amount of credit available to you versus the total amount you are using. A good credit utilization ratio is considered to be 30% or less. It is worthy to note that it may not be a good idea to ask for a higher credit limit if you have high balances, as it increases the risk of adding more debt if the spending is not managed properly.

How to build credit without a credit card?

  • Paying your student loans: Many college students have carry some amount of student loan debt. By paying your student loan debts on time, you can help build good credit, as student loan debts are reported to the credit bureaus. 
  • Take out an auto installment loan: Auto installment loans are great for those who want to buy a vehicle, but interest rates and terms vary depending on who underwrites the loan for you. If you cannot get a loan on your own, you have the option of co-signing a loan with someone else, sharing the responsibility of payments. 
  • Obtaining a secured loan: Banks and credit unions offer credit-builder loans, or passbook/CD loans, which are low-risk loans designed to specifically help someone’s credit. Credit-builder loans work similarly to secured credit cards; for a credit-builder loan, you deposit a certain amount into an interest-bearing account, and then borrow against that amount. The deposit is your collateral, paying a higher interest rate than your deposit earns it. Some banks will allow you to use an existing bank account or certificate of deposit as collateral for the loan when it comes to passbook/CD loans. You should note to confirm with your lender that on-time payments will appear on your credit report before taking a loan. 
  • Non-profit lending circles: Organizations such as the Mission Asset Fund (MAF) and other non-profit partners provide low-income borrowers a way to get financing while building credit, providing affordable loans and reporting positive payment history to credit bureaus.
  • Ask for credit where credit is due: Not having a loan or a credit card does not necessarily mean that you cannot build credit. If you have paid your rent and utility bills on time every month, you can ask for credit for that good track record and demonstration of reliability. These do not typically appear on a credit report, unless you do not pay them and the service provider sends the amount to a collection agency or files suit against you to recover the past due amount. However, some companies are making changes in that aspect, such as Experian being the first to include positive rental payment information on its credit reports.


How to build credit when you do not have credit history? 

When you are young, it is understandable that you do not have a credit history, making it difficult for you to get a loan or have a credit card. But there are ways in which you can start building your credit. You can ask someone to be your co-signer for a loan, be someone’s authorized user on their existing credit card account, or open a joint account with someone. There’s an option to ask your landlord and utility companies to report your on-time payments to the credit bureaus, and remember to keep credit card accounts open, avoid applying for multiple credit accounts quickly, and always check your credit scores and credit reports once you start building it.