Keeping credit usage low and paying on time helps you build good credit. Building good credit takes time and can be a little tricky. It will be tough to get a loan or credit card if you do not have a good credit history or profile. But how can you show a good credit history and be responsible for repayment if you don’t have credit in the first place?
Here in this article, we will discuss how you can build good credit and establish credit easily.
Ways to Build Good Credit
Apply for a Secured Credit Card
If you don’t have credit in the past and want to build a credit score from basics, it will be good to start with a secured credit card. You can also check out some of the good credit cards to apply for from the best credit cards website. A secured card is backed by the cash deposit you pay, and your credit limit is the same as your deposited amount. You can think of it like a prepaid card, where you pay upfront and use the amount later. If you are not able to pay your bill, your deposit will be used as your repayment method.
You will be able to use your credit card like other credit cards, but the thing is that you have already made the payment as a deposit and you are using the amount of your deposited balance. Your cash deposit amount will be used as collateral if you are not able to pay your card bill. You will get your deposited money back once you close your secured credit card.
Apply for a Credit Builder Loan
As the name suggests, this loan is mainly used to help people build their credit. Usually, the money you borrow is kept on hold by your lender and will not be released until your loan is repaid.
This seems like a forced savings program, and your payment is reported to credit bureaus. Community banks mostly offer these kinds of loans.
Make Payments on Time
This is the most critical factor that helps you build a good credit score. When you pay the full amount of your money to your lender each month, it creates a good credit profile. For example, paying your credit cards, home loan interest, etc. on time will automatically build a good credit score. Sometimes, unpaid bills will be sold to a collection agency, which creates a bad reputation and bad credit score. So make sure you always pay your credit card bills on time.
Keep Credit Utilization Low
Keeping your credit usage low compared to your spending limit is essential to be on the safer side to build a credit score. Also, avoid opening too many accounts or applying for too many credit cards as it affects your credit score.
Understand Credit Scores
Tracking your credit score helps you to identify where you stand and what lenders consider good or bad credit. Generally, a FICO score ranges from poor to excellent, with higher scores making it easier to get approved for loans and credit cards. Reviewing a credit scores chart can help you understand how different score ranges impact borrowing opportunities
Only Borrow What You Can Afford
When you make it a habit to charge only what you can afford, it lets the lender know that you are a responsible borrower. You will find it easier to borrow money and get new credit that you can pay. Also, it helps you to get rid of excessive debt, and you might receive some calls from money lenders about car loans, home loans, etc. because you have created good credit through this habit.
Here in this article, we discussed five ways that help you build good credit. Do share your thoughts in the comments if you want us to include anything else that is important and you think we have missed.