I am trying to secure good credit when you're just starting. Often, the loans available to you are high interest and short term, which means paying a lot in return for a small loan.
But there are many ways to boost your credit and improve your chances of getting better credit deals. Lending is a vast industry, with lots of different products and companies vying for a spot on the market. In this blog, we'll go through a couple of ways you can bring your score up to ensure better loan offers in the future.
How to build up your credit when you have none.
If your score is near or at zero, you might want to consider a credit-builder loan.
Credit builder loans are designed to help people who don't have the necessary history to apply for a regular loan. Essentially, a credit builder loan type brings in a third party, usually a bank or savings account, which is set up for you. The borrowed amount is then held in place while you pay it off. This means the lender has the security of not giving out the total amount whilst receiving you as a customer, while you also get access to a loan with a lower interest rate. So, in essence, everyone wins.
You'll still need to work out if you can afford to take out the entire loan first, which may include some planning ahead. After all, you are paying to secure a future loan here. The loan term will likely be between 6 to 24 months, depending on the loan amount. Small start-up fees may also be added when opening a new account.
There's a fair amount to consider with a booster loan — however, it can allow you to grow your score out if that's your goal.
Get money now.
There are other ways of getting early access to good credit while growing your score. But, like the credit builder loans, something has to remain as security.
A secured loan will evaluate something worth, which your credit provider determines. This includes items like cars, homes or even savings. All of these can be used as collateral, which means that in the event of you not paying the loan back, you agree that the lender has the right to repossess the item or money in question. Lenders will value your item by comparing its worth against others in the same category — so if it's your house, they'll look at other places on the market to get an evaluation.
Is it worth it?
You're more likely to get a loan approval starting if you can offer some security. But as soon as you begin to default (i.e. missing a payment over thirty days), your provider has the right to call in a repossession agency to take the secured item off you.
How to get security on credit cards.
If you're looking at taking out a credit card but lack a good credit history, you could start to think about getting a secured card. Like the above examples, secured cards rely on making a cash deposit to receive money each month.
Focus on the small bills.
If you want, you can boost the bills you do pay by asking your lender to look at them. This is sort of like a credit builder loan, verifying specific utility, phone or other billing accounts. Paying them back on time can help accelerate your credit climb — only specific lenders will offer this, though, as it is a specialised product.
Get help from a friend.
Do you have someone who trusts you with finances? By signing on as an authorised user on a family member or friend's credit account, you can use their score to help build yours.
The downside of this is if either you or your friend/family member has negative actions associated with them, your credit will be affected — so be careful with who you sign.
Boosting your credit score without a history is possible — but it mainly involves some security. The reason for this is that you haven't yet proved to credit providers or lenders that you're able to handle repayments, so they need some form of assurance.
The good news is that, when you do get there, your credit score is a form of security, which will help you get better loans or credit in future.