Three Simple Ways to Build Credit
Most people don’t know their credit score until they actually need it to make a large purchase such as buying a car or home, and many of these people are shocked to find out they have a low or moderate score. Don’t wait until you need good credit to start actively building a solid credit history; start today, even if you currently have no credit at all. Whether you like it or not, having a good credit score is really important, and can have a big impact on your purchasing power as you age.
A good credit rating comes into play when buying a car or home. But what you may not know is that it’s also necessary to qualify for low rates on just about every type of loan, insurance policy, or credit card. Also, most rental companies and even prospective employers will check your credit before allowing you to rent or offering you a job. Good credit even effects mundane things like setting up home utilities; those with poor credit can still get utility accounts, but will be required to put down larger cash deposits in advance.
Good credit is a clearly a necessity, but building credit can be hard. The challenge is that traditional ways to build credit require you to have credit history already, which many people don’t. In fact, a study from the Consumer Financial Protection Bureau revealed that 45 million Americans have no credit score — that’s 1 in 10 people. College students, young professionals, or those who’ve decided to live debt-free often fall into this category.
Fortunately, there are ways to build credit when you have none. These three services will help you build credit history from the ground up, and good credit will provide you with more financial opportunities in the future.
AMP Credit Rating
The majority of bills we pay each month don’t affect our credit unless we pay them late, which affects them negatively. With eCredable, you can now use your good bill-paying habits to build a new kind of credit score. The AMP Credit Rating, which stands for All My Payments, uses your payment history on monthly bills such as rent, utilities, mobile phones and insurance to build you a credit profile. This is perfect for people who have no credit or poor credit.
The process is simple. On the eCredable website, you add the account information of the bills you already pay each month to your eCredable account. The company then retrieves your bill payment history from the last 18–24 months and gives you a rating ranging from A — F. The rating A refers to the best credit, and F is the worst. The company charges between $80–100 to verify all your accounts and payment history, and typically takes as little as three business days.
Credit Builder Loans
Credit builder loans are small loans you can repay for the sole purpose of building credit history. These loans are an innovative solution for creating a payment history that will be reported to all three major credit agencies in a way that is both low risk and low cost. Keep in mind that building credit through a loan takes time; in order to qualify for a score through FICO, you need at least one account open for 6 months. However, building credit is an investment that opens up your financial opportunities in the future.
You can get a credit builder loan through some credit unions, as well as Austin based company Self Lender. Self Lender has a bank partner that lends you $1,100, which is then held in an FDIC insured bank account. The account will be a “CD” account, meaning a certificate of deposit account, with a fixed term of 12 months. This plan allows you to make monthly payments for only $97. Self Lender offers additional perks to its users such as free personalized credit score tracking and credit monitoring.
Secured Credit Cards
A secured credit card is a way to create or repair credit history. To open an account, you’ll need to deposit money as collateral, and this amount will become your available credit line. For example, if you deposit $500 as collateral, your limit on that credit card will be $500. If for some reason you can’t make your payments, the card issuer will keep your deposit. However, if you use it wisely and make your payments on time, it’s a great way to build credit when you don’t have any. Ideally, you can use the card for a short time to build credit and then get your deposit back when you close the account, allowing you to then upgrade to an unsecured card.
When searching for an secured credit card, make sure that they’ll report your payments to all major credit agencies. Take the time to shop around for the best possible secured card for you. Check out this helpful list from NerdWallet to get you started.
Regardless of what method you choose, building credit is important.
For those without any credit at all, there is no time like the present to start creating good payment history and building a good score. Once you have credit, it’s important that you maintain good financial habits. Paying all monthly bills on time and prioritizing debt will prevent you from tarnishing your score. To read more about maintaining a good credit score, read Bill Pay and Credit: What Millennials Need to Know.
OnePay is a free bill paying service that consolidates your monthly bills, and helps you pay less. By analyzing your trends and data, we find you ways to save on monthly bills by up to $1000 a year. You can sign up for easy bill pay here, or learn more at justonepay.com. For more on saving money, personal finance, fintech trends, and more, follow us on Twitter: @JustOnePay.
