Monday, November 25, 2013

Safely Build Up Your Credit with These Five Easy Tips

If you have bad credit, or no credit at all, then you probably know that it can be difficult to make life-changing decisions like buying a house. Without the necessary credit to make a mortgage or loan possible, you will be bound to buying and investing in things that you can only pay for up front - which can be frustrating when you need a house or car. While you can take out a massive loan for no reason, or spend ridiculous amounts of money on a credit card, here are a few safer ways to build your credit over time. Just keep in mind that any credit score is about long-term reputation rather than short term spending. 


Use a Credit Card for Groceries


Did you know that you can use your credit card for your every day purchases to build credit? Try paying anything from your rent to your groceries on your card and then make payments to help build your credit. If you shop around and find a card that offers rewards like air miles, or that doesn't charge interest if you pay by a certain day of the month, then you aren't really costing yourself anything, and might even be racking up some free vacation time. The important thing in this case is to choose your credit card carefully because the wrong one will still charge you interest that you probably don't want to pay. 



Pay Your Bills on Time


No matter how many bills you have it is important to always pay them on time. In fact, this is probably the most important thing to consider when building your credit. Late payments go on your permanent credit history and they are a huge red flag to lenders. If you can't afford all of your payments every month then try getting a consolidation loan, looking for a room mate, or, doing whatever else you can to lower your monthly payments. Paying on time every month shows that you're responsible and you know how to handle debt, which makes you a better candidate for a loan or mortgage in the future. You also want to make sure that you don't have too many payments when you go to apply to a loan, as this will work against you. Instead, evaluate your payments, pay off the smaller bills first, and go into a new loan with as few previous payments as possible. 


Start a Regular Bank Account and Save


Starting a savings account won't do anything for your credit score, but dropping money into a standard bank account builds your credit score and your ability to get a loan. By saving a portion of your income every month, even if it's a very small part, you can show lenders that you have extra money, that you know how to handle your budget, and therefore improve your chances of being approved. While you won't earn interest on a regular bank account, you do improve your credit score, and that's what counts. After all, most savings accounts don't offer very good returns anyway. 


Co-Sign


Co-signing for a credit card, a loan, or just about anything else gives you a distinct advantage when it comes to taking out a loan. A co-signer allows you to take out a loan without relying solely on your own credit, meaning that you can take out a larger loan or qualify for a mortgage that you might not otherwise apply for. In most cases, your co-signer should be a direct family member and preferably with the same surname as you. Your parents, grandparents, or siblings are all great candidates to co-sign for you so long as they themselves do not have a bad credit score. Keep in mind that the person you co-sign with will have at least some access to your bank account or mortgage and that they are held responsible if you don't pay your bills. 


Take Out a Short Term Loan


Did you know that you could get a short-term loan to improve your credit? Taking out small loans and then paying them off quickly allows you to improve your credit score without taking a huge risk. For example, a payday loan is a great way to go because you can pay it off very easily within a few months. Most importantly, you don't necessarily have to have good credit, or any credit at all, to qualify for a payday loan, so you can use them to start improving a credit score in order to qualify for bigger loans.

A good credit score can help you out when you have to borrow money for something big, but getting a credit score means borrowing money, making payments, and keeping your debt level as low as possible. When you do take out a loan or borrow money, make sure it's something that you can pay off quickly so that you can improve your credit without racking up a long-term bill. There are plenty of ways to improve your credit, some of which are safer than others, but you should always research each option first to make sure that it will work for you.


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