How Can You Improve Your Credit Record With Credit Building Credit Cards
If you use a credit builder card carefully, you could improve your credit record. By making repayments on time and staying within your credit limit for several months – typically about six months – you’ll soon start making a difference.
Paying back what you borrow on time looks good to banks and providers, even if youve had debt problems in the past. Credit builder cards are a good way of proving you can pay back what you borrow. Then you might get a better credit score next time your finances are looked into.
Having one of these credit cards to build credit should make it easier for you to get accepted for credit cards, mortgages and loans in future. Youll also have more options open to you, so youll have a better chance of being able to get the best ones on the market.
Self Credit Builder Loan
The credit builder loan offered by Self Financial is similar to Credit Strongs Build and Save Plan in that it works like a savings account. You can customize the value of your loan using the dollar value of the monthly payment you would like.
For example, a $25 monthly loan payment would get you a $600 loan, while a $150/month payment would get you a loan for $1800.
The repayment terms on these loans are 12 or 24 months. They dont have the option to have loans with terms up to 120 months, like Credit Strong.
And, if your credit needs work beyond just obtaining a loan, Self offers a Visa credit card that is backed by your credit builder loan. As you make regular payments on the loan, your loan funds are used to secure your credit card.
So you can leverage your credit builder account to get your first credit card. This can boost your low credit score twice as fast!
Repay In Full Each Month To Avoid Expensive Interest
Most cards don’t charge interest on spending if you pay the money back in full and on time by the statement due date, so this is the absolute best way if you’re able to.
Otherwise you’ll be charged interest on your full balance .
However, there’s a catch to watch out for. Some card firms could give you a higher interest rate than the one it uses to advertise the card, as only 51% of people accepted need to get this advertised APR.
So just because a card says it has a 34.9% representative APR, it doesn’t mean that’s the interest rate you’ll get. However, use these cards right and you shouldn’t be paying interest, which would mean the rate you get shouldn’t matter.
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Repay Student Loans To Build Credit Without A Card
Whether you take out a federal or private student loan, you’ll have to repay any amount that isn’t canceled as part of a loan forgiveness program. If you get a federal loan, you may not be required to start making payments until you’ve graduated, left school, or dropped below half-time status. Private loans are more likely to require you to start making payments while you’re still in school, although some allow you to defer payments.
Regardless, you can start building your credit score by making monthly student loan payments while you’re still in college and continuing this practice after you graduate. Payments toward student loans are included in your credit reports. Making on-time monthly payments on your loan will help you build your credit without a credit card, whereas late payments can ding it.
Making The Most Of Your Starter Credit Card
With a starter card, your goal should be to hit or exceed the 690 credit score target necessary to establish good credit. Here’s what you can do to work toward that:
Pay on time and in full every month to avoid interest .
Aim to use less than 30% of your available credit limit at all times. The lower your balance, the better.
Keep the account open and active.
Check your statement for mistakes.
Monitor your credit score through your issuers app.
Get your free annual credit report.
You can track your credit score for free through NerdWallet, certain banks and other third-party apps.
All information about the American Express Cash Magnet® Card has been collected independently by NerdWallet. The American Express Cash Magnet® Card is no longer available through NerdWallet.
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Other Factors To Build Credit
Hopefully, weve answered your questions about how to build credit without a credit card. You should also know that opening credit accounts or a secured credit card and building your payment history with them isnt the only way to improve your credit.
If you already have credit cards or lines of credit, paying down the current balance may help to increase your credit score because it improves your debt to credit ratio. Your debt to credit ratio is how much debt you owe against the amount of credit you have available. Your debt to credit ratio is often referred to as your credit utilization ratio.
If you have a combined credit limit of $5,000 across all credit cards and accounts and you have debt of $1,000, your debt to credit ratio is 20% . The lower that ratio, the better your credit. Keeping credit utilization below 10% is ideal.
Your credit scores are also based on the length of your credit history, so realize that if you have a credit card and dont use it anymore, you still should hang onto it because the longer you have each credit account, the longer your average age of credit which will help your credit profile.
Your credit scores will also be impacted by how many inquiries you have on your credit report, which is why its wise not to apply for multiple credit cards or loans in a short period of time. Only open cards or accounts when you need them or if you have specific creditbuilding strategies in mind.
Maintain A Low Utilization Rate
Your credit card’s balance relative to its credit limit is also an important factor in your credit score. Credit scoring models use the balance and credit limit as they appear on your credit report to calculate your . Low utilization is better for your credit.
Limiting your card use, especially when you have a low credit limit, could help you maintain a low utilization rate. If you use your card often or for a large purchase, you can lower your reported balance by paying down your card’s balance before the end of your statement periodabout 21 to 25 days before your bill’s due date.
There’s no perfect utilization rate, but aim to keep it below 10% for the best credit scores.
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Monitor Your Credit Report For Free
Hopefully one of the steps above is working for you, and you’re on the way to healing your credit history. The best way to keep track of this is to regularly check your credit reports.
There are three credit reference agencies which hold your credit reports Equifax, Experian and TransUnion . It’s best to check all three reports, because lenders may check one, two or all three when you apply for credit.
- Experian use MSE Credit Club, which offers free access to your Experian credit report and score.
- Equifax use Clearscore*, which provides free Equifax scores and reports.
- TransUnion use , which gives you free access to your TransUnion report and score.
While your credit score is a good general indicator of how well you’re doing, it’s not the be all and end all, as it doesn’t take in to account other things lenders will know about you when you apply for credit, such as your application data.
So, by all means monitor your credit score as it’s a decent way to easily keep track, but don’t assume that once your credit score’s “excellent” that you’ll get accepted for any and all credit – that’s just not how it works.
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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.
What Does It Mean To Have No Credit History
Having no credit history is different than having a bad credit score. A bad credit score means youve misused credit in the past, while a lack of credit history means youve never had access to credit at all, so there are no credit movements on your credit report. Without any information on your credit reports, lenders dont know enough about you to make a judgment on your creditworthiness.
Also, having no credit history doesnt mean you have a zero credit score. This is an important distinction, since a credit score of zero isnt even possible based on the most popular credit scoring systems. If you have no credit history, then you simply have no credit score either.
However, once you do begin using credit, the credit bureaus will have information they can use to calculate a credit score for you. The most widely used type of credit score is the FICO score, and it ranges between 300 and 850, with higher scores being far superior:
- Exceptional: 800 and higher
- Fair: 580 to 669
- Poor: 579 and lower
If youre not sure whether you have a credit history or a credit score, you can find out for free by using the website AnnualCreditReport.com, which provides a free report from each of the three major credit bureaus once each year. This is the only official site that provides free credit reports, so make sure youre using the correct link when you request a report.
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What Is My Credit Score
Your credit score is a measure of your financial health. Lenders, such as credit card companies and banks, and companies like mobile phone providers, consult the information held by credit reference agencies to check whether you’re a reliable user of credit who will pay bills and repay loans.
It’s a good idea to request a copy of your credit report from one of the credit reference agencies in the UK. Finding your credit report is free and will help you spot any mistakes in your credit history, which may count against you.
If you have a low or bad credit score it can be difficult to start improving your credit rating again. In this guide, we explain how you can build your credit rating without taking out a credit card.
How To Control The Number Of Credit Checks
To control the number of credit checks in your report:
- limit the number of times you apply for credit
- get your quotes from different lenders within a two-week period when shopping around for a car or a mortgage. Your inquiries will be combined and treated as a single inquiry for your credit score.
- apply for credit only when you really need it
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Popular Credit Cards To Build Credit With
There are lots of good credit cards to build credit with, including starter credit cards, credit cards for college students, and credit cards for bad credit. The best ones dont charge annual fees and have approval requirements that are easy to meet . Below, you can find a handful of the most popular choices, compared in key categories.
Here are some of the best credit cards to build credit with:
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Ways To Build Credit Without A Credit Card
When it comes to building up your credit score, cards arent your only option. Although credit reporting agencies often use credit card purchases and payments to evaluate your creditworthiness, this approach isnt exclusive to cards.
If youre making payments on time and keeping your debt-to-credit ratio low , you can build up enough credit to qualify for the card you want.
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Self Credit Builder Account + Secured Visa Credit Card: Best Low Apr Card For People With No Credit
Why we picked it: This hybrid financial product, which starts off as a credit-builder loan and could transition into a secured credit card , touts a low APR for the no credit category.
Pros: You can avoid having to put down the upfront security deposit required of most traditional secured credit cards, as youll be making three monthly installments payments instead.
Cons: Youll pay a one-time account fee of $9 to $15, which varies by the product. Plus, youll have to wait at least three months to have access to your secured credit card.
Who should apply? Thanks to its relatively low APR, this non-traditional credit-building loan/secured card could be a good fit for someone who may carry a balance.
Additional info on the Self Credit Builder Account + Secured Visa® Credit Card
Best Unsecured Credit Cards To Rebuild Credit
Partially secured credit cards have spending limits that are bigger than the refundable security deposit held by the issuer as collateral. For example, the Capital One Platinum Secured can be partially secured since your deposit could be as low as $49 while your spending limit starts at $200.
With a partially secured credit card, a credit card company only has a partial guarantee that they will be repaid if the cardholder maxes out the card. Thats why its rare for a secured card to be partially secured from the start.
Its more common for a secured credit card to become partially secured or unsecured after a while. This happens when the issuer gives the cardholder a credit-limit increase. Or, they may give a deposit refund as a reward for consistently paying on time.
The Capital One Platinum Secured is the only card available right now that can be partially secured from the start.
Best Partially Secured Credit Card:
- The Capital One Platinum Secured is the only partially secured credit card.
- All cardholders start with a $200 credit limit.
- The deposit youre required to place could be $49, $99 or $200, depending on your creditworthiness.
- If your credit history, income and debt situation are all really bad, youll probably have to put down the full $200. But if youre closer to fair credit or have limited experience, it may be partially secured.
- The Capital One Platinum Secured has a $0 annual fee, regardless of what your deposit winds up being.
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How To Use Credit Once You Have It
Once you have credit, watch how you handle it so that you can keep your credit score up. That means paying your bills on time, not applying for more credit cards than you need, and keeping your credit utilization ratio low.
Bear in mind that one of the factors that figures into your credit score is the length of time that your accounts have been openlonger being better. So even if you prefer to pay cash for purchases, merely keeping your credit card account open can help you achieve and maintain a high credit score.
Build Healthy Credit Habits
It may be a long process, but once you manage to access credit, use it responsibly. If you can establish a good credit score, getting approved for any new line of credit is much more simple. For the most effective long-term solution, focus on getting your credit score to a very good range of 740 or above.
Start by determining where you stand. You can access your credit report for free from each of the three credit bureaus through AnnualCreditReport.com and view your score for free through your bank online or by purchasing access from a credit bureau.
Know what youre working with, says Cristina Livadary, CFP, of Mana Financial Life Design, a financial planning firm in Marina Del Rey, California. Knowing your credit score and knowing the changes that happen is really important. Youve got to face your fears before you take action.
Once youve established your current credit profile, here are some habits you can begin today to start increasing your score:
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