Having a credit score is useful for a variety of reasons. First, it makes it easier to get a loan. Sure, you can get a mortgage without a credit score. But it’ll be very expensive and it’ll be quite a hassle. That’s why buying via credit is much, much easier.
But you probably know that. What you may not know is that it’s pretty easy to establish credit. Let’s get to it.
Let’s pretend you either have horrible credit or no credit. By the way, no credit is bad credit. Here’s what you need to do right now.
Go to annualcreditreport.com and look over your credit reports. There will be three, one from each of the three major credit bureaus. It’s free to do this once per year.
Look over each report from inaccuracies. If there are any, address them. It’s fine if you’ve made mistakes in the past. You can pay for those. But the last thing you want to do is get punished for something you didn’t even do.
After your credit reports are accurate, it’s time to build. The first thing to do is find a secured credit card with guaranteed approval. They are out there. I’m thinking of one right off the top of my head. Usually these cards only need to see proof of income and your income must be $100 more than your expenses. This criteria is pretty lenient.
Make sure also that this card reports to all three major credit bureaus. If it does, it’ll advertise it. The card I’m thinking of reports to all three. It’s the Primor Classic Visa Card by the way.
Now you’re off to the races. Yes, once you get this card and start using it, you’ll start building credit. This is what I’ve done. I know that some day I’ll want to buy a home. So I’m hustling to increase my credit score. All I’m doing is using the one credit card responsibly. I pay each month. I never push the credit limit.
You can increase your credit score faster by taking out additional loans. But unless you’re in a major rush, I wouldn’t recommend doing this. It’s a lot of hassle and loans are expensive. What you want to do is establish your credit as early as possible. Then it’s really just a matter of sitting back and relaxing. As your score increases, you can opt for an unsecured card if you wish. Then you’ll be able to actually use credit. See, because secured credit cards are secure because you’re putting up the money upfront. Let’s say you want a credit line of $500. You must first deposit $500. Then, you use that ‘credit’ with your card. When the time comes to cancel, you can get your deposit back.
What most people want and think of when it comes to credit cards is the unsecured type. With an unsecured card, you do can spend the money of the credit card company.
To close, it’s important to understand that establishing really solid credit takes time. It’s the same as building trust in someone. You wouldn’t trust someone you just met. Lenders don’t trust someone who’s just started building credit. It’s inconvenient but understandable.
Be patient. Enjoy the process. Enjoy how easy it is to rent a place to live. Buy a $1,000 Honda and learn to appreciate its reliability and simplicity. Some people actually do go through life without have an established credit score at all.
Once you get your score established, keep using your card(s) responsibly. Then your credit score will do nothing but grow. Once you get into the upper 700’s, the world of lending opens up to you.
What’s your score now? What’s your target score?