Building good credit and improving your credit score can be a long journey — but it doesn’t have to be a stressful one. At Best Egg, we believe in helping people achieve their financial goals so they can enjoy life. Here are some financial tips on how to build credit so you can live comfortably and tackle life’s financial challenges with peace of mind.
1. Look into a Credit-Builder Loan
What is a credit-builder loan? A credit-builder loan is an easy way to build good credit. This type of loan is unique because it’s designed specifically to help you establish or re-establish credit while saving money. The amount you borrow is held in a bank account while you make on-time payments to build credit. Once the loan is paid off, you’ll have access to the funds and may see an improvement in your credit score.
2. Build Credit with a Credit Card
Credit cards are a fundamental tool that can help you establish credit. By keeping current with your payments, you could be on the road to building or re-building credit in no time. Credit cards give you the convenience of buying now and paying later — and many offer rewards like cash back and points. A credit card will also offer better protection against fraud, versus debit cards. You might be hesitant to apply for credit cards because of the interest rate and fees associated with using them. So, before you apply, do some comparison shopping — make sure you understand how minimum payments and interest are calculated, the fees associated with using the card, the rewards you can earn, and the repercussions for not paying your bill on time.
Not ready to apply for a credit card on your own? Here are three alternatives that could help you build credit with a card:
- Get a Secured Card
Getting a secured card can be a safe and reliable way to build credit. To get started, you’ll be required to deposit a certain amount of money with the card issuer in exchange for a secured credit card with a credit limit equal to your deposit. Activity will be reported to the credit bureaus and If you make payments on time you may be on your way to building good credit.
- Find a Cosigner
Applying for a credit card with a cosigner could increase your chances of getting approved. What’s more, if you pay the cosigned loan as agreed, you could establish a payment history that may help you raise your credit score over time.
- Ask to Become an Authorized User
One simple way to establish or re-establish credit is to become an authorized user on someone else’s credit card account. To become an authorized user, the primary account holder must agree to have you added to their account. All account activity — good and bad — may be reflected in your credit score. For the best possible outcome, consider asking someone you trust who has a positive credit rating.
3. Build Credit Without a Credit Card
While credit cards are an easy way to build credit, there are other options. If you’re afraid of having to pay massive interest rates, don’t think you can make monthly payments on time or don’t trust yourself to use a credit card responsibly then building credit without a credit card may be the best way to go.
No credit card? No problem. Here are three ways you can build credit without using plastic.
4. Get Credit for your Rent
You deserve credit for paying your rent on time. Unfortunately, many landlords don’t take the time to report their tenant’s rent. The good news is, there are companies that will report rent for you — which may help you build credit. Keep in mind, this may not be the best way for you to establish credit since there may be fees for using these services.
5. Pay off Student Loans, Auto Loans, and Mortgages
Paying off student loans, auto loans and mortgages is good for your financial well-being and building credit. One of the factors that may have the biggest effect on your credit score is your payment history. Paying monthly, according to the terms of your loan, shows lenders that you can manage your account responsibly and that you’re willing and able to make payments.
6. Obtain a Personal Loan
A personal loan is an installment loan that can be used to help you get on the road to financial freedom. Whether you’re looking to consolidate debt, refinance credit cards or pay for a large expense, obtaining a personal loan can be a simple way to get funds quickly and save money at an affordable rate. Before diving into a personal loan application, be sure to find out if there are origination fees and prepayment penalties associated with the loan.
If you’re thinking about refinancing high-interest rate credit cards, consolidating debt or paying for a large expense, a Best Egg personal loan may be right for you.