Getting a decent interest rate on a home or car loan depends on having a good credit score. Even rental or employment applications depend on credit. The ladder is to pay the wazoo in down payments, security deposits, etc. While you need a good credit history to make your mark with creditors, you don’t need plastic to do it. Start improving your credit without using credit. Take these steps to build your credit score without actually using credit, and learn what to watch for in the future to avoid damaging the credit you’ve worked hard to build.
ONE: Visit a credit union to get a guaranteed loan. A secured loan, or shared secured loan, is backed by money you deposit in a savings account or certificate of deposit at a credit union. Credit unions are generally easier to work with than large banks, since they take more than just your credit score into account when applying for a loan. They also look at things like a good checking history or that you are making an effort to put money into savings. Make sure the credit union you choose reports to all three major credit bureaus. Some credit unions only report one of the three in an effort to save money.
TWO: Loans between peers. No, this is not about going fishing. Social lending sites like Prosper and Lending Club connect interested borrowers with individual investors. In this, investors bid on borrowers’ applications and try to offer the lowest and most competitive interest rates to win the deal.
THREE: Study? Apply for a federal student loan. Being a student can be advantageous to your credit score if executed correctly. Federal student loans do NOT require a credit check. The stipulation is that you must be at least a part-time college student and have applied for Federal Student Aid. Stafford loans have a fixed interest rate of 6.8 percent and do not investigate the reason for your financial need. Once the loan reaches payment mode, your on-time payments will help improve your score.
FOUR: Carry your partner. Become an authorized user on someone else’s credit card. Once added, your history with that specific account is usually imported into yours with the big 3 offices. Choose someone who has decent credit or this could change and affect you negatively. You’ll want to choose someone who has an account that has less than 1/3 of the balance due at all times and who pays on time consecutively each month. All you ask is to become an authorized user, not to use the card or receive a duplicate card for purchases.
FIFTH: Joint signature. Four and Five depend on trusting others, so don’t go burning bridges or chasing waterfalls. Make sure these are strong relationships as a parent or spouse. A cosigner can help you secure a loan that you may have been denied by applying for it yourself. In a jointly signed agreement, both parties are equally responsible for the debt. Make sure payments are made on time and consecutively to ensure a positive increase in your score on a monthly basis.
SIX: Pay to play. Establishing a secured credit card now is really using credit. If you are anti-plastic and just looking to improve your score, opt for this option and save yourself a paragraph. Secured cards require you to make a deposit at the bank equal to the amount of credit you wish to deposit. Some banks will allow you to receive a secured credit card for just $200, while others require a little more to play. Basically, you are taking your money and creating a credit account equal to the amount invested and paying interest on the purchases. Some creditors will convert the account to a regular line of credit after 9 months or a year of positive payment.
SEVEN: The cha cha Charge Card. Credit cards like American Express require the account holder to pay the balance in full each cycle. If you already have good credit and are simply trying to keep it in that direction, this is a positive way to ensure you’re doing exactly that without having to use credit cards. If you have little self-control, you may want to think twice about credit cards.
Using these guidelines can keep you out of the credit cycle while you keep playing. If you’ve already incurred credit debt, it’s a good idea to pay it off as soon as possible and restructure your spending habits as your use of credit becomes obsolete.
