Shopping for a new car or house can be tricky if you do not have the cash to pay for the purchase in its entirety and do not have a credit history. Chances are that if you are a young adult recently out of school and newly in the workforce, you have neither the full amount of money necessary for these hefty purchases nor the beautiful credit report full of old accounts and a massive line of on-time payments. All is not lost, however. Simply use the five following tips to build your credit and learn more about how you can get the right loan and interest rate for your needs despite your credit history.
Choose a Secured Credit Card
A secured credit card will help you build credit as long as you are willing to provide a cash deposit that will then serve as your line of credit. Before signing up for one, ensure that the company reports payments to all three credit bureaus. Additionally, search for one that will not hit you with loads of fees, which is often the case, so this one is only a last resort.
Choose a Credit Builder Loan
With this, you will use a personal loan to purchase a certificate of deposit at your financial institution. You will then make monthly payments on your loan. At the end of the term, you will have repaid your loan, made some interest on your CD and have a better credit history.
Become an Authorized User
If you are married to someone with a credit card or if your parents are willing to back you, ask if you can become an authorized user on one of their credit cards. This account will already be open, and you will simply be issued a card with your name on it. As long as payments are made on time, you will build your credit without having to open your own credit account. You don’t even need to actually use the card, your parents can keep the card… you just “piggy back” on their credit rating.
Talk to Your Lender
If you need to get a loan before you are able to build up your credit fully over several years, you will need to know more about what loans are available for you. While some lenders will immediately nix your application because of your flimsy credit report, there are plenty of companies who will work with you if you meet several other qualifications.
For example, if you are looking for an auto loan, you may be able to get credit based on such items as how long you have been at your current job, how much money you make monthly and how much the loan will cost in relation to your monthly pay. You may also find that you have a better chance of getting a loan if you are willing to make a down payment of at least 10 percent of the purchase price of the vehicle.
For home mortgages, the Federal Housing Administration provides mortgage insurance through certain lenders that is specifically for people with poor or no credit. Instead of looking at a credit report, credit may be based on such items as regular rental and utility payments, regular deposits into a savings account and personal loans. Most utility bills or rental payments should have a minimum history of 12 months to be used for this.
Work with a Professional Financial Service
If you are still having trouble securing a personal loan or another type of account that will help you build credit, a trip to a reputable professional financial service like Southeast Financial or someone similar may give you the answer. These professionals are used to working with people just like you and are aware of area lenders who provide loans and mortgages to those with little credit and little money to spend on down payments.
If you do choose to build up your credit by taking out a loan or opening up a credit card, always be sure to make your payments on time. Inconsistent or incomplete payments can actually damage your credit, making it even harder to get a loan in the future. Finally, always ask questions before you open up a new account so that you know everything about your loan terms, interest rates and other items often listed in the small print.
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