Do you need to pump up your credit?
How well you can flex your credit history? Is it enough to impress the next time you need an apartment, loan, or to set up utilities? Someday, like most people, you’ll need your credit checked. To get approved, you’ll need a good credit history. To get a good credit history, you’ll need a history of on-time loan payments. Do you see where I’m going with this? That’s right, we live in a world where you need loans in order to get… loans.
Are You Risky Business?
In the world of lending, there’s always a chance that you won’t pay back your loan. However, a past of paying back loans is a good predictor of a future of paying back loans. The three big credit bureaus each assess this chance with a scoring system, your credit score.
Your credit score doesn’t care what circumstances led to a troubled credit history. It doesn’t care about your charming personality or how badly you need the money. It only looks at your past history with borrowing and what loans you currently have. With a low score, you might be denied or offered an expensive rate.
The Catch-22
If you don’t have a credit score, it probably means you’ve never borrowed or haven’t borrowed in a long time. Either way, applying for a loan with no credit is a lot like applying for a job with a blank resume. From the point of view of lenders, there isn’t enough data to determine how risky lending to you would be. It’s safer to treat you as a risky applicant until you can prove otherwise by building a good history.
Your Credit Score Gym
What if you wanted to prepare for a mortgage or get a better rate on your next auto loan? Below are a couple of great options available to you to help pump up that score. These options are much easier to get because they are risk-free for a financial institution. Think of it as taking your score to the gym, but without the smells and accidental eye contact. Payments still get reported to the credit bureaus like any other loan. You’ll want to get started early to create a history of on-time loan payments and get your score in shape.
Credit Builder Loan: With a credit builder loan, you receive the money after you finish making payments. It’s similar to building savings, except that your deposits get reported as loan payments. Many institutions will even allow your payments to earn dividends.
Secured Credit Card: This works like any other credit card. The key difference is that you “secure” this card with an amount in a savings account. That amount determines your limit and works like a security deposit. Annual fees can vary so be sure to shop around.
Tips for Mad Gains
- Pay on Time! Late payments get reported and could lower your credit score.
- Mix it up. Having different credit types, such as term loans and revolving credit will improve your score. Consider using the money from a credit builder loan to secure a credit card.
- Stay 30% below your credit limit. Getting too close to your credit limit will hurt your score.
- Learn more about your credit score with a short, animated e-course at DenverCommunity.coop/courses. No signing up or downloads required.
- If you are interested in a credit building loan or secured credit card, fill out this request form.
