Not all debt is bad. It’s absolutely okay to borrow money if it’s used carefully and wisely as you need to build a credit score, especially when you are young. A good credit score speaks of one's responsibility and trustworthiness and gives a chance to get financial help from the banks whenever needed. Here are seven tips on how to establish credit from scratch.
Pull Your Credit Reports!
Get your free credit report from annualcreditreport.com. It's free, and you can do it once a year. It’s not going to give you a credit score, but it’s going to give you what activity may exist on your credit. This is the primary step that you need to use as a resource to move through the other steps.
Sign Up or Hire a Monitoring Service!
You need to remember that the credit score is a moving target, and you need to build your credit report with good habits and responsibility. In simple terms, a credit score doesn’t get you credit, but a bad credit score can prevent you from getting it.
Coaching is an important part of these steps because you need professionals to look at your credit report every day as they can help build your score based on what you need. Sometimes these coaches are paid for separately from the monitoring service; sometimes, they come together in one package. Get the terms that work best for you. They are going to teach you what types of credit cards or personal loans to get and what can go wrong in your path.
Use Secured Credit Cards!
You might hear a lot about this out on the web. Basically, it's when you put for example five hundred dollars with a bank, and then they give you a credit card with a five-hundred-dollar limit. You cannot touch that secured amount but can take out credit within your credit limit. That’s good as it's going to be reported and consequently affect your credit score. But it's also weird as now you are in the five hundred dollar limit world. Maybe you want a ten-thousand-dollar credit limit someday. Lenders are going to consider you as a $500 borrower, so that may have some detrimental effect. Here comes again the main essence of coaching as your coach may help you decide which secured credit card, if at all, is good for you.
Become an Authorized User!
Actually, this is the fastest way to build a good credit score and get some good reporting on your credit report. Don’t confuse being an authorized user with having someone cosign on your application for credit. These are very different things, as you may still have credit limit issues if you are a cosigner. What you need to do is get a credit card on someone else’s credit with long repayment terms and high credit limits. Literally, this can be a self-coaching process that will teach you responsible credit usage.
Show Responsible Use of Credit!
Many people warn not to get a credit card, but only a few understand that a credit card is a necessary evil to build your credit. This is not about maxing out your credit limit or making dumb purchases. You don’t have to pay a lot of interest, just use your credit card once a month and pay it off right away. This is a necessary step to build a credit history to show the lender that you have a credit card and use it responsibly.