You want to build credit but how are you supposed to show a history of responsible repayment if no one will give you credit in the first place? With no credit history, it’s hard to get a loan, a credit card or even an apartment. Stacey Jones with Navigator Credit Union has details on how you can build credit.
Credit builder loans
A credit builder loan is exactly what it sounds like – its sole purpose is to help people build credit. With Navigator’s Credit Builder Loan, you make regular monthly payments, Navigator reports your positive payment history to all three major credit bureaus – and you even earn interest on the money you’re saving while you establish credit. With Navigator’s Credit Builder Loan, the funds are deposited into an account with monthly payments and placed on hold until the loan amount is paid in full. It’s a terrific option for establishing credit without an upfront cash deposit.
Secured credit cards
If you’re building your credit score from scratch, you could start with a secured credit card. A secured card is backed by a cash deposit you make upfront; the deposit amount is usually the same as your credit limit.
You use the card like any other credit card: buy things, make a payment on or before the due date, incur interest if you don’t pay your balance in full. Your cash deposit is used as collateral if you fail to make payments. You’ll receive the deposit back when you close the account.
Secured credit cards aren’t meant to be used forever. The purpose of a secured card is to build your credit enough to qualify for an unsecured card – a card without a deposit and with better benefits. Choose a secured card with a low annual fee and make sure it reports to all three credit bureaus; Equifax, Experian and TransUnion.
Retail charge cards
Many gas stations, department stores and other retail chains offer their own branded credit cards. They tend to be easier to qualify for and usually have lower credit limits. For those reasons, they can often help establish or build up a thin credit limit.
Get a co-signer
It’s also possible to get a loan or an unsecured credit card using a co-signer. But be sure you and the co-signer understand the co-signer is on the hook for the full amount owed if you don’t pay.
Become an authorized user on someone else’s credit card
A family member or significant other may be willing to add you as an authorized user on his or her card. As an authorized user, you’ll enjoy access to a credit card and you’ll build a credit history, but you aren’t legally obligated to pay for your charges.
Ask the primary cardholder to find out whether the card issuer reports authorized user activity to the credit bureaus. That activity generally is reported, but you’ll want to make sure – otherwise your credit-building efforts may be wasted.
You should come to an agreement on how you’ll use the card before you’re added as an authorized user. If the primary cardholder expects you to pay your share, make sure you do so even though you aren’t legally obligated.
About Navigator Credit Union
Navigator has served communities on the Coast for 80 years. In 1939, the credit union began offering savings accounts and loans to local shipyard workers who, until then, had not had access to financial services. Today, Navigator is a full-service financial institution offering free interest-bearing checking accounts, high-yield savings plans, unlimited rewards credit cards, mortgage services, competitive vehicle loans, retirement planning and more. Visit navigatorcu.org for additional information.
For more information, call (800) 344-3281.