Building a good credit from scratch is exactly like the egg-chicken conundrum. What came first? Chicken or egg? – similarly to build good credit, you need good credit cards but you only qualify for them if you have a good credit.
If you are trying to figure out how to build credit from scratch, you are at the right place. We are here to help you out by providing some good tips for building credit.
4 Tips to Build Credit From Scratch: –
- Get a Secured Credit Cards: – Applying for a secured credit card is extremely important for building credit from scratch. A secured credit is a card that is basically backed by a cash deposit that you make upfront and the deposit amount is equal to the credit limit.
You can use these secured credit card just like a normal credit card to buy things, deposit payments before the due date, incur interest on failing to pay the balance. If you fail to make payments on time, then your cash deposit can be used as a collateral.
Secured credit is not meant to be used forever, it is only a tool to build credit and qualify for an unsecured credit card.
- Use your friend’s Credit card: – If you have a family member or a friend who is responsible and makes his/her payments on time, then ask them to authorize you on their credit card.
As an authorized person, you will be able to access their credit card and build a good credit history for yourself without paying for the charges, but be careful of whom you ask to authorize you. If he/she is irresponsible and does not make payments on time, then it will put a bad impact on your credit history and bring down your credit score.
- Loans: – If you are a college graduate and you make on-time payments for your student loan, then it can help boost your credit. However, if you make late payments, it will make a completely opposite effect and screw up your credit score. It is recommended to set-up automatic payments so that you are never late.
Not just for college students, home loans can also help you build credit if you make on-time payments. Also, auto loans help in building credit. One thing to remember is if you pay by cash, it will help you save money on interest, but it will not help your credit.
Peer to peer loans or personal loans can help you build credit as well, especially if you are a low-income customer or have a bad credit.
- Build good financial habits: – Follow these good financial habits to build a good credit:
- Make all your payments on time. By payments, we do not mean only credit accounts. Make on-time payments on all other payments, such as utility bills. Unpaid bills usually get sold to a collection agency which can bring down your credit score. Thus, in that way, you will be able to avoid the need to delete collection accounts from credit report.
- Try not to open too many new accounts. Your credit depends on the average age of your account so, too many new accounts will lower your credit.
- Make sure to get a credit report every year and look for any kind of errors in there. You can get 1 free copy of your credit report every year. Go over to annualcreditreport.com to order your report.
There you go, 4 amazing tips for you to build your credit from scratch. We hope you have enjoyed reading our article. Make sure to share it with your friends and family.