How to Build Credit: Improving Your Financial Records for a Future Loan

One of the trickiest parts of dealing with personal finances is understanding how to build credit.

For most people, it is especially hard since, in order to build a good credit, you need to have a credit card or a loan.

However, to get either of these things, you must first prove you have established credit.

For many, this process seems cyclical and impossible, but it doesn’t have to be.

To stop the frustration and help you build and improve your credit score, here’s what you need to know.

Smart Guide on How to Build Credit

1. Student Loans

The smartest way to build your credit is by starting early.

For a new college graduate, understand that student loans are the most important gateway to improving your credit score.

For this reason, make sure not to miss any payments.

If your budget allows you to set up monthly recurring payments, then do so to avoid missing your dues.

2. Apply for Your First Credit Card

If you have established enough credit to allow you to qualify for a credit card, then apply for one.

Most banks offer low spending credit limit for starters.

This is an easy way for you to begin improving your credit.

Make small purchases which you can easily pay in full.

The issuer of the credit card then typically reports your transaction history which greatly affects your overall credit score.

3. Apply for a Credit Builder Loan

Some banks and credit unions assist you in building good credit by offering credit builder loans.

This is a unique kind of loan where the money borrowed is stored in a savings account and cannot be accessed until it is paid in full.

The main purpose of which is to help you boost your credit score.

4. Apply for an Auto Loan

If you are buying your first car, consider applying for an auto loan instead of paying for it in cash.

While it is true that paying in cash saves you from paying additional interest, it does not help you build good credit.

Instead, making on-time payments or staying current on your agreed monthly installment boosts your credit score.

5. Apply for a Personal Loan

If none of these sound like feasible ways to begin understanding how to build credit for you, consider availing of personal loans.

While some do not believe that personal loans are a wise financial decision, they can greatly help when you are trying to establish or repair your credit score.

Ultimately, they help financial institutions evaluate your attitude as a borrower.

6. Get a Co-Signer

The easiest way to qualify for a loan account is to have a co-signer make the application with you.

You can ask your parents or anyone who has an excellent credit and is willing to pay on your behalf, should you stop making payments.

In addition, having a co-signer with an excellent credit score allows you to avail of loans with better interest terms.

7. Practice Good Habits Towards Your Finances

• Do not miss any monthly payments on your bills — whether they be credit cards, auto, mortgage or phone bills.
• While spending is key to building good credit, you should also watch how much you spend on your credit card. Keeping it low is highly suggested.
• Keep your accounts open even if you rarely use them. If possible, try to make small charges and pay them in a timely manner.

Are you having a problem with building a good credit? Watch this video by Bank of America to understand the impacts of a negative mark on your credit score:

While building credit can be a headache, there are surefire ways to help you get on the right track.

Remember, regardless of your strategy, always keep track off with your personal finances.

Building credit is a long process, but when you’re able to secure a home or car because of it, the work becomes worthwhile.

Do you have any tips on how to build credit? Share your thoughts with us in the comments below.

Up Next: Unsecured Loans for People with Bad Credit: Are They Good or Bad for Your Finances