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There’s no perfect approach to building credit. You’ll often see the greatest impact by using a blend of credit-building methods, from time-tested favorites like credit cards and personal loans to newer services designed to add recurring payments (rent, etc.) to your credit reports.
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In case you haven’t noticed, we’re avid proponents of the credit card as an essential credit-building tool.
But that’s not to say credit cards are the only method you should use to establish and build your credit scores.
To the contrary, while we can’t guarantee that a given credit-building method will get you the best results, it’s generally agreed that using a combination of tactics benefits your credit scores more than relying entirely on credit cards alone.
With that said, let’s dive into five of the best ways to build credit, whether you’re looking to establish credit from scratch or repair severely damaged scores:
Take your pick from the list above if you’d like to learn about a specific method, or read on to discover how each credit-building approach works.Read more How To Build Credit Without a Credit Card
Credit cards can be exceptionally practical for building credit because there are options available for cardholders in virtually every credit situation.
If you have no credit whatsoever, you can stick with a secured card or a student credit card. If you’ve already built fair credit, on the other hand, you may be able to score a decent rewards card that allows you to earn points or a bit of cash back on things you’d already be buying anyway.
Regardless, once you’ve added a credit card to your wallet, your account activity will generally be reported to the three major credit bureaus — Equifax, Experian, and TransUnion. As you make on-time payments, your credit history will age and expand, and your credit scores should grow in turn.
The key to success to make sure you’re using your credit card responsibly at all times. Otherwise, you could do more harm than good. If you land yourself in deep credit card debt or rack up negative items on your credit reports, the effects of those mistakes can last for years to come.
One of the best ways to build credit from nothing is to simply become an authorized user on a loved one’s credit card account.
It’s one of the easier credit-building tactics, because it requires virtually no effort on your part. The primary cardholder can add you to his or her existing account. Then, the payment activity for that account will generally be reported to the major credit bureaus in your name (depending on the card issuer’s policy). It’s just a matter of finding someone you trust to ask for a favor, because the primary cardholder is entirely liable for the account’s balance. Also if the card isn’t used responsibly, it could hurt your credit scores.
There may be some requirements you’ll have to meet to be an authorized user, but it shouldn’t involve a credit check, and that’s what makes it useful for building credit.
There are a few ways you could go about being an authorized user, so talk it over with the primary cardholder to figure out which approach seems best.
One idea is to ask for account access privileges, if the issuer allows it. You can use the card and pay it off promptly to get a better idea of how credit cards work.
Another great option is to simply ask the cardholder to toss the authorized user card, so the account activity appears on your credit reports without you actually having to spend any money.
Like secured credit cards, credit builder loans cater to credit beginners or those looking to repair their credit scores.
They’re quite a bit different than normal loans. Instead of receiving a lump sum of money and then repaying the lender for that amount plus interest, the financial institution issues you a loan but puts the money into some sort of account — usually either a savings account or a CD. Then, you make a fixed monthly payment to the lender.
Your positive payment activity is reported to the credit bureaus throughout the life of the loan.
Take note that the size of your credit builder loan won’t really matter, for credit building purposes. In general, the most important factors here are your payment history and how much of the loan you’ve paid off.
After you’ve paid the predetermined credit builder loan amount in full, you’ll receive access to the funds plus any interest they earned while they were sitting in savings. Of course, you won’t be reimbursed for any interest or fees you paid to the lender.
On top of the interest you pay for your credit builder loan, you’ll usually be charged an administrative or activation fee, as well. But these fees are generally kept quite low and explained clearly ahead of time.
It’s true that personal loans can potentially help you to build better credit. Yet it can be difficult to qualify for a personal loan with a decent rate unless you’ve already established some good credit history in the past.
Plus, we only recommend getting a loan if you actually need one to fund a larger purchase, like a car. Applying for a personal loan for the sole purpose of building credit is generally a bad idea.
However, if you legitimately need a loan, on-time loan payments are an excellent way to add to your positive payment history on your credit reports. As with credit builder loans, adding a personal loan (aka an installment account) to your credit mix might also have a positive impact on your overall credit scores, depending upon your existing mix of credit.
Like credit builder loans (which are also installment loans), the size of your personal loan doesn’t have much effect when it comes to building credit.
If you’re currently carrying student loan debt, your on-time payments should positively impact your credit scores. But they often work a bit differently than standard personal loans, so we didn’t include them in this section.
These payments won’t always be factored into your credit scores, but they could help you in some cases.
Trick question! The best way to build good credit scores will always vary based on your unique financial situation, including your current credit status, your income, and more.
For example, if you have the cash on hand, consider signing up for a secured credit card and a credit builder loan.
That’ll give you plenty of opportunities to make on-time payments, and the fact that you’re using two different types of credit will help diversify your variety of accounts, which makes up 10% of your FICO Scores.
No matter how you choose to build credit, it’s essential that you follow credit building best practices if you want to see good results. Most of these rules are pretty simple.
Looking to build your already-established credit scores with a credit card that suits your lifestyle? Explore all of our favorite credit cards to find one that’s right for you.
Sean Messier works to empower individuals with the knowledge required to use credit cards responsibly and to their advantage. His writing- and research-based background has granted him experience in an array of topics, from finance to business and beyond. Sean distills the knowledge accumulated over years of experience in the credit space into consistent, actionable articles, guides, and reviews.
Michelle Black is a leading credit expert, author, writer, and speaker with over a decade and a half of experience in the credit industry. She is an expert in credit reporting, credit scoring, financing (mortgages, credit cards, loans), debt eradication, budgeting, saving, and identity theft. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).
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