Starting To Build Credit With A Credit Card
To start building credit with a card, you’ll need to either open a credit card of your own or become an authorized user on someone else’s credit card. Getting a card of your own can be difficult if you’ve never had credit before, or if you have poor credit. However, there are options.
- Secured credit cards are often a stepping stone if you’re starting to build or rebuild your credit. These cards function like normal credit cards, but you’ll have to send the card issuer a refundable security deposit when you open your account. Secured cards may have high fees and don’t necessarily offer great cardholder benefits, but responsible use can help you qualify for better credit cards later.
- A student credit card can also be a good first option if you’re a student. Student cards tend to have low credit limits however, there are student cards available that have few fees and offer rewards on purchases.
You can also ask a friend or family member to add you as an on one of their credit cards. When they do, their credit card company can report the account to the bureaus under your name as well. You’ll get your own card and can make purchases, as long as the primary cardholder agrees.
Having another person’s card as part of your credit history can help you build creditas long as the primary user manages their card well. Your credit won’t be helped if the primary cardholder doesn’t make payments on time, for example.
Request A Higher Credit Limit
One key move you can make is to request a higher limit on your current card. If youre looking for ideas on how to increase credit scores, this is a good one.
The idea is to up the ceiling on purchase limit, but spend less each month so that credit utilization ratio improves. Note that this may result in a “hard inquiry” of your credit report, which could result in a brief drop of your credit rating. You may find youre on the way to your best credit score ever!
Make All Monthly Payments On Time Every Time
Your payment history constitutes 35% of your credit score, so make sure that you are able to make all of your debt payments on time, every time. Even one late payment can drag your score down substantially, so be sure to use tools such as automatic bill payment to ensure that youâre never late with your payments. Although creditors typically wonât report a late payment until itâs at least 30 days past due, being even one day late with your payment could trigger late fees and higher interest rates from the creditor.
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Get A Credit Builder Loan
When you apply for a credit builder loan, lenders place the full amount typically between $300 and $1,000 into a secure account. Unlike a regular loan, you cant access the money right away. Instead, you make a fixed payment every month until youve paid off the entire loan and then get the full amount back. Credit builder loans offer a great way to build credit because youre making regular payments but arent spending extra money. All payments are reported to major credit bureaus to help boost your credit rating.
Open A Store Credit Account
Many stores offer credit accounts. Most are reported as revolving credit, the same as a credit card. Home Depot offers project loans. Many local home improvement stores also offer credit accounts, and some are available with the payment of a deposit in lieu of good credit. Staples office supply store has several credit products, including a personal credit account administered by Citibank. Before applying for store credit, be sure the vendor reports to the credit bureaus.
Also, keep in mind that some are better than others for people with poor credit scores, while others can help individuals recover from poor credit.
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How Do You Establish A Credit Score In The First Place
Though there are a few competitors, including VantageScore, FICO credit scores are used in more than 90% of lending decisions made by financial institutions, according to Shawn Lane, co-founder and COO of the credit repair company FRS Credit.
In order to generate a FICO credit score, you need to meet three requirements:
If you dont have any accounts that have been open or active for at least six months, you dont have a credit score.
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Secured credit cards require the consumer to submit a security deposit in the amount of the desired credit limit. If the consumer defaults on what has been charged to the card, the deposit protects the issuer. Secured cards are good for people who have no credit or those who are working to repair bad credit. One secured card with much to offer is the Discover it® Secured Credit Card.
The Discover it® Secured Credit Card card offers cash back, which is unusual for a secured card. Earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter, 1% unlimited cash back on all other purchases – automatically. The annual fee is $0, and the deposit can range from $200 to $2,500. The APR is 22.99% Variable APR.
While most secured cards will return your deposit if you pay the card off in full and close the account, the Discover it® Secured Credit Card has an even better opportunity. After 7 months with the card, Discover begins monthly reviews of your account to see if you qualify to get your deposit back and graduate to an unsecured card.
Note that youre not guaranteed the upgrade, and Discover considers your behavior across all credit products, even from other issuers.
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The Five Credit Score Influencers
There are five categories that contribute to your credit score. They are:
- Payment History
- Length of Credit History
- New Credit
- Types of Credit Used
Each is unique and will impact your credit in different ways likewise, they are all connected. When one falters, others falter when one is lifted, others are lifted. Its a financial food chain, so to speak.
Payment History
Your payment history reflects how often you have paid your bills on time. If youve ever gone bankrupt or missed a payment due-date by more than 30 days, for example, your credit scores will be lowered.
This is why paying your bills on time is so important because this category is the biggest contributor to whether you have good or bad credit.
Amounts Owed
This category reflects your overall . Your credit utilization ratio is a percentage of how much credit you have available to you vs. how much you owe on all of your accounts. Car loans, student loans, and , are all added together and are combined with available credit. In short, its what you owe versus what you still have available.
Length of Credit History
How long have your credit accounts been open or active? The longer the better for this one. Close an account that you have had for a long time, and you will negatively impact this category when it eventually drops off your credit report.
New Credit
Types of Credit Used
Take Out A Credit Builder Loan
A is an installment loan with fixed monthly payments, similar to a personal loan, auto loan and mortgage. But unlike a typical loan that grants you access to cash upfront, your lender deposits the amount of the credit builder loan into a savings or CD account that you cant access until your loan is paid in full.
On-time payments you make toward your credit builder loan are reported to the credit bureaus and can help you establish a credit score. Credit builder loans arent our top choice for building credit since youre unable to access the money from your loan until its repaid.
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How To Build Credit Without A Credit Card
Most people think of credit cards as a good way to build credit, but credit cards are far from the only way to build your credit and payment history.
Credit cards also only build your revolving credit history, in order to build a strong credit profile and get a great credit score it is important to have a good , which includes an installment loan account. Credit mix is used to calculate 10% of your FICO® credit score.
So, if youre wondering how to build credit without a credit card, weve mapped out 7 ways to beef up your credit history and profile without needing a credit card.
Qualify Based On Your Credit In Another Country
If you established credit in another country and then move to the U.S., your credit history wont get added to the U.S. credit bureaus systems. But the credit you built overseas may not all go to waste.
International banks and card issuers have programs that can help existing customers get a credit card in the U.S. based on that relationship. They can then report the U.S. credit card to the bureaus to help you establish your credit here.
Other companies are taking different approaches. For example, Nova Credit allows you to use your credit history from select countries to apply for U.S. financial products.
Theres also Jasper, a credit card company that creates a card for professionals who are moving to the U.S. and have a job offer. If that describes you, you can apply and qualify for the card before you arrive in the country.
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Always Make Your Payments On Time
The biggest factor affecting your credit score is whether you make your payments on time. Just one missed payment can have a significant impact on your credit score. Even worse, the mark will stay on your credit report for seven years, although the negative effect will fade over time.
The good news is that you can completely avoid missed payments by committing to make those payments on time, every time. One trick is to set up autopay on your credit card account for at least the minimum payment due each month.
File A Credit Report Dispute If Errors Are Present
If you find any issues, be sure and contact the credit reporting agency immediately and work with them to file a dispute. If there are charges you dont recognize, it may be necessary to place a freeze or block on your social security number.
When youve got ID Theft coverage with American Family Insurance, well help you file your fraud claim and our team will help you manage the issue, which can be quite time-consuming and costly.
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Avoid Getting Too Many Credit Cards
It can be tempting to sign up for lots of credit cards, especially with the rewards and special offers for in-store financing. While theres nothing wrong with opening up more than one credit card account, there are no simple rules about how many cards are too many. However, there definitely comes the point when managing multiple accounts is more trouble than its worth.
If a new credit card will tempt you to buy more than you can afford, or if you might have trouble remembering to make the payments for the new card along with all the rest, dont open it. These things will only hurt your credit rather than help it. Furthermore, each time you open a new card, itll be listed as an inquiry on your report, which can drop your score for up to a year.
Ask For Your Rent To Get Reported To The Credit Bureaus
Typically, rent isnt reported to credit bureaus. But if youre paying it anyway, why not get credit for it?
Some rent reporting services can do this. You can ask your landlord about reporting, too.
Ideally, you can use the credit you build this way to invest in a home, so youre not paying rent in the future and instead are building personal wealth through owning real estate!
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How Is A Credit Score Is Established
Before you can begin to build your credit, it first takes an awareness of what is actually used to determine your credit score.
If youre a seasoned vet when it comes to credit scores, its probably safe for you to move on to the next part. However, if youre new to the credit scene and just beginning to wrap your brain around these things, keep reading.
Capital One Platinum Secured Credit Card
- No annual or hidden fees. See if you’re approved in seconds
- Building your credit? Using the Capital One Platinum Secured card responsibly could help
- Put down a refundable security deposit starting at $49 to get a $200 initial credit line
- You could earn back your security deposit as a statement credit when you use your card responsibly, like making payments on time
- Be automatically considered for a higher credit line in as little as 6 months with no additional deposit needed
- Enjoy peace of mind with $0 Fraud Liability so that you won’t be responsible for unauthorized charges
- Monitor your credit with CreditWise from Capital One. It’s free for everyone and checking your credit does not hurt your credit score
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Add Your Rent Payments To Your Credit File
Newer credit scoring formulas are beginning to include rental payments as a payment record. After all, if you make your rent payment on time each month, thats very similar to responsibly handling installment debt like a mortgage.
Not all credit scoring algorithms are set up to include rent payments as part of your credit score, but it is becoming increasingly common. In fact, FICO recently started counting rental information, if available, in its FICO 9 score.
Even if youre looking at a score that does include rental payments, though, getting that information into your credit file can take a little finagling. Most landlords dont report on-time rent payments to credit bureaus . In order to get your rent payments counted in your credit file, you may need to use a third party rent tracking system. Check out this article for more information on the available options.
Report Your Rent Payments
Not all landlords report rental payments to the major credit bureaus, but some do. And if they do, your on-time payments can help in the same way on-time payments to credit card companies do.
Renters can check to see if rent payments have been reported to Experian, TransUnion and Equifax. You can get a free copy of your credit report once a year at annualcreditreport.com, and you can monitor your credit more frequently for a small fee by ordering copies periodically from the credit bureaus: The most they can charge is $13.50.
You can pay a third-party service like RentTrack to verify each rent payment and report them to a credit bureau. There is usually an activation fee and a regular monthly fee when tracking your monthly rent payment with these tools.
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Apply For A Retail Store Credit Card
According to the Consumer Financial Protection Bureau , a retail store card is another option you might consider if a secured card or a student card isnât the right option for you.
Just like a traditional credit card, a retail store card could show as a line of credit on your credit report if itâs reported to the credit bureaus. And using the card wiselyâlike making consistent, on-time payments on the cardâcould help build credit history. That may improve your chances of being approved for a traditional card in the future.
Keep in mind that you might only be able to use retail store cards in the store or group of stores that issued them. You can learn more by reading the cardâs terms and conditions.
Timeline To Build Credit From Scratch
Thereâs no official timeline for building credit from scratch. But there is a bottom line: Building credit can take time, and it requires financial responsibility. But by steadily making progress, you may set yourself up to one day reach bigger financial goals, like buying your own home.
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Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.
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