Q&A Video – What Are The Easiest And Most Effective Ways To Build Credit?

John Ulzheimer

John Ulzheimer | Q&A Videos

Nov 07, 2014 | Updated Feb 17, 2015

There are many ways to build credit, like becoming an authorized user on someone else’s credit card, opening a secured card, or getting a credit builder loan, for example. Having good credit is important in many ways, like getting good terms on loans or making big purchases such as cars or houses.  Learn more in our video with credit expert John Ulzheimer.

Transcript

Hi, I’m John Ulzheimer, a credit expert who contributes to the Credit Card Insider blog. Today’s topic is the easiest and most effective ways to build credit. Now, these strategies are going to apply or you’re trying to rebuild your credit after some sort of credit disaster like a bankruptcy, for example.

Number one is to become an authorized user on the credit card belonging to someone else, perhaps a relative or a loved one. The value to becoming an authorized user is that the history of the card will then show up on your credit reports, which means that if you are added to a credit card that has been open for a long time, has always paid on time, and has a low balance relative to the credit limit then that’s going to be very helpful to establishing a good credit report and you’re well on your way to establishing a solid credit score.

The second strategy is to open either a secured credit card or retail store card, both of which are fairly easy to get even if you have limited or no credit. A secured card is when you’re asked to place a deposit with a bank and a card issuer sends you a card with a credit limit equal to your deposit. So for example you deposit a thousand dollars with the bank you’re likely to get a credit card with a one thousand dollar credit limit. Their issuance of credit is fully secured by your deposit, hence the term “secured card.”

Retail store cards: These are cards that are branded with some sort of retail establishment they’re very easy to get because the interest rates are generally in the mid to high 20s and the credit limits on those cards are generally very very low. So if I asked to shut your eyes and I explained those terms to you, you would think that I’m describing a subprime credit card. As such, they’re pretty easy to get, as long as the secured card, or the retail store card shows up on all three of your credit reports, again, it’s going to help you to establish or rebuild a credit report and credit score.

And finally, the last way to establish or rebuild credit, is a fairly unknown method called a credit builder loan. A credit builder loan is a very small dollar loan issued by a credit union. The credit builder loan is generally in the neighborhood five hundred to a thousand dollars and the payback terms are fairly aggressive, meaning to you’re likely going to have to pay it back within six months to a year. You do not actually yet the extension of credit. The credit union will deposit the amount you borrowed into an interest-bearing account, and as long as you make your payments month after month, they will report that payback activity to credit reporting agencies. After the item has been established, paid off, you will get the money back, which means that you’ve established yourself a nice little slush fund, emergency fund, fun fund, plus the interest you’ve earned. And, at the same time, you’ve had something good populating all three of your credit reports. Check with your local credit union to see if they offer credit builder loans.

To learn more about this topic or anything else having to do with rebuilding credit, credit scoring, credit reporting, or credit cards, please visit CreditCardInsider.com. Have a great day.

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