Daily, I read in personal finance forums and groups, experts arguing about how to build credit and the best ways to go about it. It is no wonder so many people are confused and outright disgusted with the entire credit industry.
This frustrating sentiment was further confirmed according to a recent CFSI Consumer Financial Health Study. But, I’m going to walk you through the three most significant steps you can take today towards establishing new credit.
These strategies are tried and true credit score boosters. They include things such as:
- Being added as an authorized user
- Applying for a Fingerhut catalog credit account
- And obtaining a secured credit card.
If you have a thin credit file with little to no credit; by adding these credit building tools, you could see your credit score increase by 100+ points in 30 days.
Authorized User – Tradelines
The authorized user credit building strategy is a great first step in building credit. This is because there is no credit check, and it is free, the strategy works like this…Find a parent and ask them to get online and add you to their credit card as an authorized user.
If your parents are unwilling or unable, you can try asking other family members or friends. However, only get added as an authorized user to a credit card with a history of on-time payments.
If not, your credit file will show those late payments and hurt your credit score. By being added as an authorized user to their credit card, your credit file will “inherit” that tradelines’ credit history.
After Being Added
The credit history will transfer to your credit file the next time the lender reports to the credit bureaus. Keep in mind the person who adds you to their credit card will still be 100% responsible for paying the credit card bill.
This is regardless of if you agree to pay for anything you charge. So even if they ‘won’t agree to give you the credit card, it is still a great way to build your credit and improve your credit score.
Once you have been added as an authorized user, your credit file will reflect the credit cards:
- Past payment history
- Account length
- And its utilization ratio.
A Federal Reserve study found that people with a thin credit file who are added as an authorized user may experience a credit score increase as much as 96 points. The amount the credit card tradeline can increase your credit score will be dependent on:
- The age of the card
- Credit limit
- And its utilization ratio
The largest gains are usually seen if the credit card is 10+ years old or has a $20,000 limit. It is uncommon for people to have the ideal credit card to add their family to as an authorized user.
If you find yourself unable to find a suitable credit card to be added to, you can purchase an authorized user tradeline. Tradelines can turn a thin file into a thick file of good credit history in just a few short weeks.
Fingerhut Catalog Online Store Credit
One of the easiest ways to start establishing credit is by applying for Fingerhut Catalog Credit at their online store. Fingerhut is a well-known credit builder for people who have bad credit, are new to credit, and everyone in between.
They have a famously loose policy for extending unsecured credit to people when no one else will. On the off chance that you do not qualify for their standard credit account. Fingerhut offers its Safeline program that requires you to pay a minimal fee upfront to gain access to their credit.
Fingerhut will perform a credit check that will appear as an inquiry on your credit file. Within seconds of applying for Fingerhut, you will receive your credit limit. You can then start purchasing from ‘1000’s of options from the Fingerhut catalog online.
Another great program Fingerhut offers its customers is a guaranteed credit limit increase after making your first three payments on time. The only downside to Fingerhut credit is that you can only use it on their online website.
However, they offer ‘1000’s of items, including clothing, shoes, jewelry, electronics, outdoor gear, furniture, and even health and beauty products. This credit account is considered a revolving loan and will help your credit utilization ratio and payment history, which account for up to 65% of your FICO credit score.
Secured Credit Card
When most people think about credit and credit building, I think the first thing that comes to mind is a credit card. Getting your first credit card is kind of a right of passage and signifies that you are becoming an adult or at least the start of adulting.
Unfortunately, when you are first trying to establish new credit, you may find it hard to qualify for a traditional credit card. This can be due to a very thin credit file or even an empty one.
A white paper released by the Federal Reserve Bank in Philadelphia explained that lenders will decline your application if they cannot correctly assess the risk of lending you money. Now, I know what you are thinking, “How do I establish credit if they ‘won’t give me any?”
That’s where secured credit cards come into play. A secured credit card looks just like a regular credit card and works just like a traditional card. However, with a secured card, you must put down a deposit that the lender holds as collateral for giving you a credit card.
With a secured credit card, the lender requires you to put up money as collateral that they can use if you do not make your payments. The lender will report your credit card activities the same way that they would a traditional credit card which will immediately help start establishing your new credit.
How To Build Credit
Establishing new credit can be done very quickly if you follow the three steps above. Credit building is about consistent on-time payments, increasing available credit while using as little of that credit as possible.
Understanding how credit affects your credit score can be the most important financial lesson you may ever learn. Early mastery of your credit file will result in you having access to the lowest interest rates and financial freedom for the rest of your life.
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