For those young and old, it’s never a bad idea to know how to build credit. Whether it’s building up your credit or rebuilding credit, knowing some key rules to help build credit are important to have in your toolbox.
This is especially true if you don’t have a credit history. But if no one will give you credit, how are you supposed to build credit history? In order to have a FICO score, for example, at least one credit account is needed and you need to have that account open for at least 6 months. So here are 5 things you can do to establish credit or build your credit history.
1. Get Someone to Cosign For You
This is probably one of the more obvious things to do in order to build a credit history or a way to rebuild credit. Getting what’s called a “co-signer” is the process of getting someone to essentially guarantee your loan. In the event that you miss a payment or don’t payback the loan, the co-signer is responsible for paying the balance or the entire loan depending on the situation. However, this does allow you to obtain a loan if or when you otherwise would not be able to.
2. Become An Authorized User On Someone Else’s Credit Account
Another “easy” option to build credit would be to get someone with good credit to add you as an authorized user on their credit account. This could be anyone from a family member or close friend. As an authorized user, you would be able to access that person’s credit card while also building a credit history.
You aren’t legally bound to pay for the charges, however, the primary cardholder may be upset if you make a charge without the intent of paying the card back. In the proper usage of the card, however, on-time payments by the primary cardholder will benefit the credit of all authorized users of the account.
3. Get A “Credit Builder Loan”
For those trying to figure out how to build credit, a credit builder loan serves the specific purpose that the name suggests: help you build credit. The money that’s borrowed is held by the lender in an account and isn’t released to the person taking out the loan until the loan is repaid.
Essentially it is a forced savings account and these payments are reported to credit bureaus. Credit unions and community banks typically offer these kinds of “credit builder loans” and some online lenders may also offer them.
4. Get A “Secured Credit Card”
Similar to the “credit builder loan” a secured credit card requires money to be in an account in order to utilize the “credit building” features of this option. Cash deposits made up front into an account backs a “secured credit card” and the deposited amount is usually the same as the credit limit on the account.
Obviously, an account like this isn’t meant to be a “forever thing” but it is a good way to obtain some sort of credit card account while you’re trying to build or rebuild credit. Making sure to pick a secured credit card with a low annual fee and confirming that it reports to all credit bureaus is very important.
5. Get Credit For Monthly Payments Like Rent Payments Or Car Payments
If you do have some sort of credit but it isn’t great, see which monthly bills you can get credit from. Rental Kharma and TentTrack are rent-reporting services that take a bill you are already paying and add that to your credit report to help build a positive history of on time payments.
Some credit score accounts take these kinds of payments into consideration, which may be enough to get a loan or basic credit card that will, in turn allow you to build credit or rebuild your current credit score.