In my opinion over the decades “building credit” has become almost like a very tough yet scary and unattainable task. Rumors over the years of “building credit is not easy” and “it takes really long to build credit” have created uncertainty in many people which will stop them from doing research and understanding how credit actually works.
I’m a victim personally of this fear of building credit, but once I did my research and found that it’s more simple than people claim it to be, I realized that it’s if not the holy grail but the single most import part of your financial future. Fortunately, we’ve put together a few solutions where you can start building your credit responsibly with a lot of discipline and faster.
How Does Credit Work?
A person’s credit report is a history of how you were able to manage debts, were you late on a student loan? Did you make late payments frequently? All this information will determine your creditworthiness to future lenders, that’s why it’s very important to consistently keep your credit history growing which will positively impact your financial future.
When dealing with credit card companies or lenders they will report all of your activity to the three major credit bureaus which are Experian, Transunion, and Equifax. Once you start building credit history a three-digit credit score is created. Now being that each credit bureau scores differently because they each have their own scoring model, in the long haul no matter which scoring is used the overall score will be what represents your creditworthiness to the lenders.
Open A Secured Credit Card Account
The secured credit card is a wonderful tool to build your credit, although some people might mistake this card as a “Pre-Paid Card”. This type of credit card is called Secured because it has a refundable security deposit, so if you can’t pay your bill for whatever reason then the credit company can use your security deposit to cover the debt. So in this type of credit card what actually determines your credit limit is how much your security deposit was. Depending on the credit card company you can deposit as low as $200 and some companies allow bigger deposits depending on how high you need your credit limit to be.
When applying for a secured credit card make sure to communicate with the card company and verify that they are reporting your payments to the three credit bureaus as explained in the introduction. If the secured card company does not, then that card will not help you in building your credit history. Also, make sure you’re on top of the card issuers fees, some may come with fees that will be taken out of your credit limit. And never go over your limit, be responsible when using it and pay it back quickly.
Now upon receiving your secured credit card make it a priority to make small purchases every month, do not go over your spending limit. Doing this the right way will demonstrate that you can handle your payments and start building trust with future card issuers. Now it can be easy to accidentally miss a payment, that’s why I suggest having automated payments taken out or set your calendar in advance so you never miss a payment.