Do You Want To Build Credit?

 

Do you know what to do to build credit and establish yourself as a good credit risk? Believe it or not, the way you approach a small line of credit can make a big difference later on when it’s time to apply for an auto loan or a mortgage.

And if you are not a newcomer to credit, consider this article a good primer for teaching someone else about building credit–I personally know many teachers who rely on information like what you’ll find below as supplements to their in-class work or as a general guide to begin a discussion about credit.

How To Start Building Credit: Co-Signers

It can be tough to get a foot in the door, so to speak, with credit which is why some credit reporting agencies advise younger consumers to apply for a line of credit with a co-signer. Having a co-signer means a lowered risk for the creditor and an opportunity for someone new to credit to establish a history of responsible spending.

Remember that anyone who co-signs is financially liable for the debt even if the primary account user is the person trying to build credit. Co-signing carries a degree of risk and this option should be seriously considered and discussed between both parties–the person who does not pay on time damages two credit reports at once.

Build Credit With Secured Credit Cards

There is an old rule of thumb; those who think they might want to buy a home one day often think twice about becoming a co-signer for the very reasons mentioned above. That is true of both established credit users and newcomers alike.

What is a potential borrower to do if they don’t want to co-sign on a credit account but still need to build up a credit history? Secured credit cards and secured loans are low-risk ways to establish credit.

Your bank’s secured credit card or secured consumer loan program will have you deposit a set amount each month into an account that you can later borrow against.

Why does this plan work so well with new consumers? Because it avoids the risk of co-signing (everyone makes youthful mistakes with early credit use once in a while) but establishes the same pattern of spending and repayment the creditors want to see when you apply for a larger and unsecured line of credit.

Build Your Credit By Spending And Paying Wisely

What some are never taught about the way credit works in the early days? Paying on time and keeping your balances reasonable? Major parts of the credit building battle.

No matter if you are yourself trying to repair your credit or teaching someone else how to do it, it’s key to know that on-time payments are a major factor in your FICO scores. For best results NEVER miss or be late on a payment.

This establishes you as a good credit risk and it only takes a year of consistent payments to establish your record. Keep your balances below 50% (30% or less is ideal) and you avoid the “credit over-utilization” problem some consumers experience when shopping with new cards.