In many cases, one of the biggest financial challenges people face is getting credit when they have little to no credit history. Without a solid record to review, lenders often view an applicant as riskier, and that can lead to issues obtaining credit. In some cases, the lender may reject your application. In others, accounts may come with higher interest rates and lower credit limits, which aren’t always ideal.
As a result, it’s wise to build your credit profile strategically. Along with helping you establish yourself as a less risky borrower, a high credit score is critical for getting leases, buying insurance, opening accounts for local utilities, and more. If you’re looking for easier ways to get credit, here are some tips that will help you build your credit history.
Become an Authorized User
Authorized users are persons added to credit card accounts by the account holders. As an authorized user, you can make purchases using the card and start building a credit history. However, you can’t make changes to the account, as only the account holder has those rights.
The benefit of being an authorized user is that you don’t actually have to use the card to see your credit score rise. Instead, activity by the primary cardholder also benefits you. However, if the account holder misses a payment or becomes delinquent, that can drag your score down.
Additionally, you’re technically responsible for any associated debt even if you didn’t make the purchases. As a result, if the account holder flakes, you’ll have to make the payments to keep your credit history intact.
Get a Secured Credit Card
If being an authorized user seems too risky, getting a secured credit card is a sound alternative. With these, you make a deposit that backs the account, usually in an amount of money equal to the credit limit. Then, you can use the card for purchases and make payments to keep the account in good standing.
The benefit of getting a secured credit card is that there’s a lower barrier to entry. The deposit makes you a less risky borrower. However, interest rates can vary, so don’t assume you’ll get a competitive interest rate simply because it’s a secured card.
Make On-Time Payments
Making on-time payments on any of your existing credit accounts is essential for building a solid credit profile. Your payment history makes up 35% of your credit score, making it a significant component of the scoring model.
A single missed payment on your credit report can cause a score decrease of up to 180 points, though the impact may be smaller depending on other aspects of your credit history. By consistently paying on time, your score will usually rise, and that works in your favor.
Get a Credit-Builder Loan
Credit-builder loans are designed to help those with little or no credit history start improving their credit profile. These work differently than traditional loans, as you don’t receive money from the lender immediately. Instead, you select an amount and terms, and you make payments to the lender in the agreed-upon amount. Then, when the term ends, you get the money you sent in back, minus any applicable fees.
The benefit here is that the lender reports the payment activity to the three credit bureaus. As a result, making on-time payments and completing the term help you build a positive credit profile, making it easier to borrow later.
