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Steps to Building Your Credit History

Money may make the world go round, but your credit score will open doors to opportunities that can change your life and financially boost you up. And if you have no credit history? It can prevent you from getting a credit card, auto loan, or mortgage. It may also be a challenge if you want to get an insurance policy, fill out a rental application, or apply for a position. Yet, surely, the majority of adults in the United States have a credit score? You might be surprised to hear that millions of Americans have no credit. Don't despair whether you are one of these people or meet someone who is. Credit can be established through a number of methods.

What Does “Credit Invisible” Mean?

You have no financial background with the credit bureaus if you are "credit intangible." You are invisible to them and anyone who requests a credit report if you don't have this background.

According to a 2015 survey released by the Consumer Financial Protection Bureau, one out of every ten people, or about 26 million Americans, falls into the credit invisible group. A further 19 million adults have insufficient financial history or recent behavior to produce a credit score, according to the survey. When you sum that all up, that's almost 45 million people in the United States who have been put at a disadvantage because they don't have a credit score.

What Can I Do To Establish Credit?

The challenge of establishing credit is not insurmountable. Having recurring payments that are posted to one or more credit bureaus is crucial to establishing a credit history. Here are a few possibilities to think about.

Credit Cards

A credit card is the most convenient way for many of us to build credit history. If you've been turned down for a conventional credit card, there are three other choices open to the majority of people. Let's take a peek at each one separately.

Secured Credit Cards

Since it is usually connected to a bank account, a secured credit card is typically easier to obtain than a regular credit card. A protected credit card's cap is usually equal to or a fraction of the balance in the associated savings account. You will start building a credit history by using the card, making on-time deposits, and letting the bank submit the payments to the credit bureaus. It might even improve the odds of converting to a conventional credit card account in the future. 

Joint Account or Authorized User

When you've been turned down for a regular credit card, you can open a joint account with someone who has established credit or become a registered user on someone else's current account. This could be acceptable to your parents, partner, family friends, or even a close acquaintance. The billing history for the account will appear on your credit report which will be used to determine your credit score while you are on it.

Retail Store Credit Cards

Credit cards that can only be used at gas stations, department stores, and other shopping establishments are available. You should assume a lower credit cap and a higher interest rate than on a regular credit card. And, as with any form of credit, it's important to stay under your credit limit and make your monthly payments on time.

Credit Builder Loans

A credit builder loan, which is mostly available at credit unions or community banks, may be beneficial if you have little or no credit background. If you're allowed, the money will be deposited into an account that you won't be able to reach until the loan is fully paid off. You demonstrate the ability to repay a loan by making monthly payments for a fixed period of time.

Choose a loan number that you can quickly repay and ensure that the contributions will be registered to at least one credit bureau to get the most out of this form of loan.

Lending Circles

Formal lending circles can be used today to create credit history, despite the fact that this method of lending has been around for centuries around the world. This is how it goes. A group of people pool their funds, and one member of the group receives a loan each month before everybody in the group has received one. Repayment sums are deducted from each member's bank account, and timely payments are posted to credit bureaus. Lending circles will be run by both for-profit and non-profit organizations.

Self-Reporting Payments

You may think that "self-reporting" means that you will give a credit bureau your payment details directly. That is incorrect. Self-reporting entails using a third-party provider to supply credit bureaus with payment details that isn't typically published. Companies who record rent, service, and mobile phone charges to one or more credit bureaus, for example.

Banking Relationships

Your credit history is not explicitly built from having a checking or savings account. The credit bureaus aren't informed of the actions on these accounts. Establishing a positive association with a bank, on the other hand, may be beneficial when applying for credit. Lenders also use details from your bank account, as well as your credit background, to decide if you are a suitable candidate for a credit card or loan.

It's important to stop late payments and correct any incorrect records on your credit file as you construct your credit history. It's never too late to start building your credit. Obtaining a nontraditional credit card might be a good first move. You may also open a joint account or become a registered user with someone who already has a credit history. Other choices include taking out a credit builder loan, entering a lending circle, or self-reporting payments. Paid on time and making those payments posted to the credit bureaus, regardless of the system you use, is critical to no longer being credit invisible.

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