Due to today’s tough economic times, it is almost impossible to lead a financially stable life without turning to loans. You may need loans for a variety of reasons – your child’s higher education, for purchasing a new house or car, for a home makeover, for expensive medical treatment, etc. However, lenders are more hesitant than ever before to approve loans for people with no credit, bad credit or even just an average credit score. That means you would have a tough time getting loans if your credit rating is less than high. Consequently, establishing your credit and building up a good score is the only way to turn the situation in your favor.
Now let us discuss 6 smart ways that can help you establish credit or rebuild credit:
• On time payments: This is the most important action that can guarantee a good credit score. No matter how many credit cards or loans you have to pay for, always make every monthly payment on time. Even if you are not able to settle the full amount, pay up at least the minimum amount specified.
• Open a bank account: Consider opening a checking account or savings account in a bank. Both these account are positive signs for lenders. However, never overdraw your account or create a situation for bounced checks. Such negative actions obviously point to careless financial management and missed payments of debts.
• Smart use of credit card: Select a good credit card for your needs and use this to purchase budgeted items you have to buy anyway. Avoid excessive credit card use though. Smart use of credit card indicates you are financially responsible and trustworthy.
• Keep an eye on the credit card balance: Financial experts highly recommend having a balance of around 25 – 30 percent on your credit limit at the end of every month. Such careful use of credit cards points to a smart and conservative use of credit cards.
• Get a secured credit card: A secured credit card is one that is tied to your bank account. Getting a secured card is easier than a regular credit card since the credit limit for a secured card is determined by your deposit in the bank and thus poses zero risk for the card issuer. These factors also make a secured credit card a great credit reference.
• Get a store credit card: Such cards are often accepted only by one or two stores. Although the interest rates of these cards are comparatively higher than other credit cards, they go a long way in building credit.
• Apply for a loan: Taking a loan and paying it back on time creates a good remark on your credit report. If you do not need a loan at the moment but still wish to rebuild credit, consider applying for a small loan or maybe line of credit from a local bank. Remember to pay the monthly installments on time and not to miss any payments. Also ensure that the bank reports this information to the three credit bureaus.
Although rebuilding or establishing credit will take time, the effort is worth it due to the significance of a good credit rating in modern society. Most people turn to loans when it comes to huge expenses like buying a car, purchasing new furniture or making home renovations. A good credit history of on time payments will qualify you for loans at the lowest possible interest rates.
Finally, remember not to fall in for scams while attempting to establish or rebuild your credit. Now that you know building credit takes time, do not believe anyone who promises to instantly get you a good credit history or score.