Most people do not know that lenders will always request credit reports and credit scores to check borrowers’ reliability in paying bills. Most lenders consider payment performance as a good predictor for performance in future credit.
Paying bills on time positively influences credit scoring. Late payments and settling accounts with amounts less than initially agreed negatively affect an individual’s credit scores. Always pay all your bills on time – not just loans, but also utilities such as phone bills, rent, water and cable. A good idea to ensuring timely payment is to utilize automation tills such as calendar reminders and setting up automated payments that are common with most mobile applications.
Building credit score from scratch can be quite a process. Starting with a secured card backed by the upfront cash deposit ensures that the deposited amount acts as the credit limit. Once you start using the credit card for purchases and making payments, you will build your credit to get an unsecured credit card. Unsecured credit cards do not require any deposits and offer better benefits. It is pertinent to ensure that the annual fees of a secured credit card are low and that the company reports to all the three credit bureaus; Experian, Equifax and TransUnion.
A secured loan or a more commonly known as a credit-builder loan, is a facility useful in building credit. The money borrowed is held by the lender and only accessible once you have repaid the loan. It is more of a forced savings plan. The upside is that the payments you make are reported to the credit bureau. Community banks and credit unions mostly offer such loans. They can also be accessed online through some lenders offering the service.
One can get an unsecured credit card through a cosigner. Co-signer’s credit score and limits should be higher than yours when using them to get credit. Co-signing improves not only the odds of getting the credit but also affords lower interest rates. Nonetheless, in case of default, the co-signer will be held responsible for the full credit amount. While such an option is noble, the borrower needs to honor the agreement and meet all payment obligations on time.
Using rent-reporting services such as Level Credit and Rental Kharma improves credit scores. Such services take bills paid and put them in the credit report, thereby building positive histories on timely payment. Some credit scores may take these payments into account and may help get a credit card or loan that firmly establishes one’s credit history to the lenders.
Building credit from scratch can be quite taxing. However, using the aforementioned steps, one can leverage and build their score from scratch. Making payments on time is the sure most way of improving score and building credit.
