Most people I talk to are interested in repairing their credit. Even people with good scores are now motivated to make them GREAT (i.e. 720+) due to tightened lending guidelines.
While trying to repair damaged credit is certainly a challenge, there is something that can be even more difficult to overcome.
What?
NOT HAVING ANY CREDIT AT ALL.
Now, not having credit when you are 18 is no big deal. That is considered normal. But if you are older, you will face a challenge in establishing credit.
Still, even if up until now you have chosen to pay everything in cash, you may find yourself ready to establish credit for various reasons. Perhaps you want to buy a home in a few years or maybe start a business.
What can you do?
The first thing you will want to do is establish a bank account with a major bank or credit union. Make sure you keep it in good standing!
Once you have saved up some money, ideally at least $1,500, go see the branch manager of the bank and see about getting a CD loan. This is basically where you open a CD and the bank makes you a loan against it. They aren’t concerned with your credit history because they have your CD as collateral, so if you default, they still get their money.
This strategy will accomplish several things. The first is obviously, you will establish a trade line with a bank. As long as you make your payment on time, you will most likely benefit further.
How? Most banks will issuing you a small credit card after just 6 on time payments.
While you are waiting for this six months to pass, you can still get a credit card! What you will need to do is set up a secured credit card. There are numerous companies out there that offer secured cards, so you want to shop around! Ideally, you want a low application fee and a lender who will consider converting your account to unsecured (and refund your deposit) after a set number of payments.
Another fantastic way to build credit is to get a spouse or parent to add you to one of their existing accounts as an authorized user. Some people mistakenly believe that this is no longer a good strategy because FICO 08, the new credit scoring module, has changed the rule for authorized users. Because unscrupulous credit repair companies were having people pay to become an authorized user for people they had never met, the only people that you can now become an authorized user for are parents or a spouse.
Still, if you can talk your Dad into doing this it is a great strategy! If he is reluctant, remind him that just because you are an authorized user, doesn’t mean he actually has to give you a card!
(Tip: When choosing a card you want the oldest possible account that has a low balance. Obviously, you only want to do this if there is a perfect payment history!)
Click here for more information on how to get credit .
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