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Jan

3 Ways to Build Credit.

As we’ve mentioned, you need to take a multi-front all-out offensive war on a bad credit score, if you want to see credit improvement as quickly as possible. Part of this war strategy includes building good credit and creating a trail of positive payment history.

Of course, paying your monthly bills on-time will begin to create a trail of positive payment history. And depending on your personal circumstances some folks choose to take on the expense of a new credit line, even under less than ideal circumstances, simply for the opportunity to display current financial and creditworthiness.

 

There’s a number of credit building tools and we’re just going to share the three most common and ideal methods. First, is what’s called being assigned an authorized user for a credit card account. This is also called piggy-backing credit.

The idea, is if you have a friend, loved one, trusted person in your life who has phenomenal credit and is willing to add you to their credit card account as an authorized user, you can see credit score improvement as a result of their responsible behavior. If you pursue this path, you’d be sent a credit card with your name on it, and of course the power to use this card.

 

The reason your credit score will benefit is because this account is going to be reported on both your credit reports, and the responsible loved one’s credit reports. This will help fix your credit score because it’ll help your amounts owed FICO category, worth roughly 30% of your overall score.

This looks at all your available credit to debt, with an emphasis on your available and unused credit. For instance, if your loved one makes you an authorized user on a credit card with a $10,000 limit with a $1,000 monthly balance, that would be $9,000 of available and unused credit. This is very good for your credit score.

Obviously, it makes you appear to be in a lot better circumstances when applying for financing if you have $9,000 of available unused credit, compared to the guy whose credit card is maxed out. In addition, the on-time monthly payments will help with creating a trail of positive payment history.

 

The second credit building tool is using a co-signer. This can naturally help if you’re applying for a car loan, personal loan, or any type of credit line. And if you have a trusted loved one with good credit willing to do this, it may be worth pursuing.

It’s wise, if you go down this road to only finance a small sum of money. Because in most cases, you’re going to be looking at less than ideal terms, such as higher interest rates, etc. It may be worth the expense of these terms.

But please, don’t pay too much of your hard-earned money in high-interest fees or any financing charges. This is how the bankers get rich, off the folks with less-than-perfect credit.

The third tool is a credit card. Depending on your specific situations you may be able to get approved for an unsecured traditional credit card account, again with higher interest rates, and potentially fees. If approval isn’t possible, many folks turn to a secured Visa or MasterCard.

These are very similar to traditional credit cards, the exception is you must first make a deposit with the credit card issuer. This money is what secures your account. And often you can choose the amount of your deposit, and generally, the amount you choose will be equal to the credit limit on your card.

For example, if you deposit $500, you’ll be given a major Visa or MasterCard with a $500 limit. This deposit is fully refundable provided you don’t default on your payments. And you will be charged a slightly higher interest rate, and in most cases a nominal annual fee or such.

Capital One has a popular offer that may be worth your further insight. Just please, before applying make sure your account will be reported to all three credit bureaus monthly. And whatever you do, stay away from catalog, merchandise, or shopping credit cards. These are predatory lenders, and won’t help the cause.

Nor will prepaid, reloadable, debit cards. They will give you a major Visa or MasterCard, but your account won’t be reported to the credit bureaus. Thus, it won’t help build your credit.

Here’s the thing about all three of these credit building tools (authorized user, co-signer, and credit card) if they’re used irresponsibly they can also damage your credit score even further. So please, use some discretion if you pursue any of these three options, it’s not worth losing relationships over, or wastefully spending substantial sums of money upon.

Get a FREE credit consultation with a certified FICO professional by calling toll-free 1-877-418-7596.