People say that money makes the world go round, but the truth is that good credit provides you with the most opportunities. Building credit can be a challenge if you don’t have any previous history. However, it’s an essential part of life and can simplify many situations.
Keep reading to learn three methods of building credit the right way.
1. Open a Credit Card
Most people know that opening a credit card will influence their overall score and history. However, they don’t know how to maximize it for their own benefit. Here are three factors to consider.
Choosing a Secure Credit Card
There are many credit cards available on the market, but it’s essential to know the difference between secured and unsecured cards. Simply put, secured cards require an upfront deposit that minimizes the risk for the issuer. With a secured card, you can build your credit without risking going into debt. They’re typically much easier to obtain an unsecured card — making them a good option for anyone with limited credit history. The only downside is that your deposit creates a cap for your spending limit.
Getting a Co-Signer
If you’d like to have an unsecured card and don’t have a credit history, you can consider getting a co-signer. This person would agree to take on your debt if you default on paying. If they have good credit, then you’re more likely to get approved. The downside is that most major credit card companies do not allow for co-signers. You’ll need to research your options if you’d like to take this approach.
Making Regular Payments
To build good credit, you’ll want to make regular payments regardless of the card type. It’s always best to pay off the debt in full. Keep in mind that late payments can cause additional interest and penalty charges to accrue. Additionally, your payment timeliness influences your score.
2. Apply for a Loan
When the situation calls for it, loans are extremely beneficial. They typically have lower interest rates than credit cards and can allow an individual to purchase something outside of their savings range. Many loans are also known as good debt because they help a person pursue investments that improve their life. They also influence credit and can help build a long-standing history.
From this standpoint, it would be worthwhile to make a significant purchase or investment using a loan. These purchases encourage natural credit building. Keep in mind that you should only borrow as much money as your feel comfortable paying back. Defaulting on a loan will damage your score, so it’s worth setting up an automatic repayment program.
3. Become an Authorized User
One of the easiest ways to build safe credit is by becoming an authorized user on another’s account. When added, you gain access to their available funds and earn a credit history without liability. Unlike co-signing, if the other person stops paying, you are not responsible for covering their fees. However, it’s beneficial to choose someone who pays their bills on time and is financially stable, so their account does not negatively affect your score.
You can use these three ways to grow your credit and check the results using annual score reports. Good scores allow you to get lower interest rates on future loans and credit cards and improves your chances of getting approved. Building credit takes time, but it pays off in the long run.