How to Build Good Credit from Scratch
Building credit is something many people struggle with. Your credit history can be affected by many different factors. Your payment history, how much you owe, or how long you have been managing your credit can all have an effect on your score. One other factor that might affect your score is if you apply for a lot of different cards. This can have a negative impact on your score.
Before being approved for a loan or a credit card, you will have to do a hard credit check. A hard credit check is done when you request or approve of a bank doing a deep dive on your credit history. A hard credit check can look at how often you are paying, how long you have maintained credit, and how much available credit you are using. This report will go into your report and can affect your credit score negatively. A hard credit check will only affect you only about 3-5 points, so you don’t need to worry about this unless you are doing it consistently.
A soft credit check is done without your approval. This may be done by credit card companies when they say you are pre-approved. This does not have an effect on your credit score, so there is never a need to worry about soft credit checks.
It can be extremely difficult to build credit when no one approves you for the things it takes to build credit- like a credit card or a loan. Here are some helpful tips that will help you build credit when faced with this problem.
Get a Secure Credit Card
One way to build credit is to apply for a secure credit card. You can apply for a secure credit card with no credit history at all and get approved. The way they work is a little different than a normal credit card. You simply put money down as a deposit on the card. This is used as proof that you are able to pay off the card because the money that you are actually using is yours. This way the bank is taking on little to no risk. Typically, you are able to load anywhere from $50-$1000 on a secured card.
Two common cards that many people apply for are the Capital One Platinum secured card and the Discover It secured card. Both cards have their own perks. With the Capital One secured card, you are able to have a credit limit that is higher than what you put on the card. This is because the bank actually pays for a little bit of your credit, taking on some of the risk. With the Discover It secured card, you actually get 2% cash back on all purchases. This is uncommon with secure cards, so this might be something you want to consider when choosing.
Get Someone to Cosign a Loan
Another option for building credit is having someone cosign a loan with you. If you know someone that would be willing to take on the risk of cosigning a loan with you, you can build credit this way. By making regular payments on time and in full, you are able to build credit and rapport with your bank.
Credit Builder Account
Getting a credit builder account is another way to build your credit. Some banks like Chime and Self offer a credit builder loan. You are able to pay off this loan by making regular payments. This might be a good option for you if you have some money to set aside for some time since this money will be tied up in the loan. When you pay off the loan, you are able to get your money back in full. It’s important to note that some banks that offer this may charge a small fee. Yet, it might still be worth it to you to build up your credit.
When building credit from scratch, it’s important that you don’t apply for any cards that you know you won’t get approved for. This can hurt your credit score since they will do a hard credit check on you. When getting a card or loan, make sure you are paying your payments consistently and in full if possible. Be sure to follow these tips to grow your credit score and help it stay healthy.