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The Best Way to Go from No Credit to Good Credit

The Best Way to Go from No Credit to Good Credit 

Building good credit is a catch-22 situation; how can you build credit when no one is willing to lend without a credit history? The truth is, there are some strategies that you can take to gradually build and establish a decent credit history and, subsequently, make you a viable applicant and potential candidate for lenders.

In addition to getting a free credit report to understand how you look to lenders, below are a few things that you can do to establish and build good credit so that you can get the loans you need.

Pay your bills on time 

The first thing to do to build credit is to maintain and pay your bills on time. Paying bills late can be reflected on your credit report, which could impact your ability to secure credit later on. This includes bills such as your car payment, cell phone, and even your household utilities. While it is a simple and somewhat obvious step, it is often overlooked and reveals to lenders your ability to manage your current finances.

Apply for a secured credit card

If you want to start building credit, plan on applying for a secured credit card. This is usually a line of credit that is extended up to the amount of the security paid by the applicant, and that uses the applicant’s own funds as collateral on the loan. Many consumers find that these are a good option to maintain unanticipated expenses or emergencies.

Like the above tip, you’ll want to pay your card off every month. The idea is not to carry a balance and to never spend more money than you can afford. Remember, you’re trying to build credit here, not buy things that you may not necessarily need.

Use the 20 percent rule with credit card balances

Another way to begin building a positive credit history is to pay off any lines of credit or cards each month. If you are starting out with a secured card, keep your use to around 20 percent of your available credit. Pay it off every month, down to $0, to build a good credit history.

For example, if you have a credit limit of $1,000, you don’t want to use more than $200 in credit each month. This shows creditors that you are in control of your finances and prevents you from falling into a cycle of debt that you can’t get out of.

Avoid quick fixes

When a financial crisis happens, it may be tempting to borrow money wherever you can find it. Avoid alluring offers for applicants with bad credit or no credit, including payday loans, buy-here-pay-here auto dealers, or other high-interest options. The terms of these agreements are often unreasonable, and could jeopardize your credit rating if you struggle to pay your installments.

Join forces with family members with good credit

If you have a family member with good credit, adding your name to the account as an authorized
user may raise your credit rating. This must be done with the primary account holder’s permission, of course; even if you never use the account, the member’s activity may help you build good credit, as long as the account is in good standing.

You can go from no credit to good credit

Sometimes it may seem as though having no credit is as difficult as having bad credit. Take steps to preserve and gradually build a solid credit history, and avoid situations that could compromise your future credit rating. Over time, you should be able to establish a credit history that makes you a promising applicant for financing, loans, and lines of credit from any institution.

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