Your credit history will determine almost everything – if not everything – about your finances. Whether you want to buy insurance, get loans, or be financially free, you must be able to build strong credit.
You may be young and have no credit history; you’ll not be building a strong credit history from nowhere. But then, whether you are just starting out or are looking to repair your credit, it is very important that you start as soon as possible.
It is however important to know that you are not going to find a quick approach to fixing your credit score. But there are gradual measures you can consider to establish your credit with patience to grow to have a strong credit record.
Who Needs to Build Credit?
Your credit is very important to succeed in the modern world. There are certain things that will become tougher when you have bad credit or no credit. While you are trying to build a credit history, ensure not to borrow hastily or recklessly. You do not also have to drag yourself into high-interest loans. But who needs to build credit?
- Someone With Bad Credit History
You may have borrowed loans in the past and defaulted or missed payments; you need to build credit. One key approach is to rebuild and add positive items that eventually surpass the negative ones.
- Someone With No Credit History
If you do not have a loan record with the three major credit reporting agencies or have never borrowed in the past, then you need to build a credit history.
How to Build Credit
To build the kind of credit history that lenders will find interesting, you’ll have to get loans and be timely with your payments. This may look simple, but it is definitely not easy to do. There are tactics that can help you get the needed momentum in the short term and build you a strong credit history that will last a lifetime.
Depends on what your needs are and what resources you have at your disposal, and even if you have no sponsor, you may find some of these approaches workable
1. Get Someone to Cosign
A cosigner is a person who concludes a loan application with a borrower and also assists them in getting approval by promising to repay their loan. Generally, someone who is a cosigner must have sufficient income and good credit to get the loan. So, even though the loan finally comes to you, the cosigner is the reason it is approved.
If you are able to find someone to stand in for you as a cosigner, then you can leverage the loan to build a strong credit history for yourself so long as you pay on time. But it is often risky for anyone to stand as a cosigner as they would be the one to bear the full loan amount if the borrower fails to pay.
2. Apply For Personal Loans
You can get personal loans with an online lender or through a credit union. With an unsecured loan, you will be able to do beyond loans from retailers and credit cards. You’ll make regular payments every month which will help your credit score. The unsecured loan will give more risk to the lender than the borrower as there are no collateral being pledged to acquire the loan.
3. Cash-Secured Loans
Cash-secured loans help you get loans against cash in your savings account, credit union, or certificate of deposit (CD) in your bank. The lenders aren’t faced with so much risk since they can easily take the cash from the savings account if you fail to pay. So, you’ll get approval quickly and easily with this. With this kind of loan, you can build strong credit for yourself. This kind of loan is sometimes called a credit-builder loan.
4. Build a Credit History Using Secured Credit Cards
Another way to build a strong credit history is through secured credit cards. It is different from prepaid debit cards and allows you to acquire loans against the money deposited in your lender. It varies from cash-secured loans in that you’ll be given a plastic payment card which can be used in online or in-person purchases. You may also minimize your interest costs by keeping your loan balance at zero. Keeping a balance on your card really has no way it boosts your credit fast.
5. Get Loans through Retailer
There are retailers who fund loans through banks and other financial institutions; you can borrow from them instead of borrowing directly from a bank. You may have come across offers to buy merchandise on a monthly payment plan or “same as cash”, and they can help you build credit.
You’d likely find it easier to qualify for these loans than standard credit cards but you’d have to be sure that the credit bureau receives reports on your loan activity. And with that, ensure that your loans are timely paid.
6. Be Added As an Authorized User
If you have someone who has a credit account open already, you can be added as an authorized user. You’ll get a card having your name and can use it for making purchases. But you won’t have to be the one to refund the loan. But it is important to ensure that card issuer reports authorized users to credit bureaus.