Credit score experience is not easy, especially once one begins living with personal finance. This guide for beginners will help you through the step-by-step process of building credit so you can apply for a loan and arm you with practical practices to get you on the right track.
Understanding Credit
Before we go to the how-to, understand what credit is and why it matters. Credit is the promise to repay borrowed money. Lenders assess your creditworthiness through a credit score; ranging from 300 to 850. A higher score usually means that the borrower is quite reliable, but lenders would be hesitant to offer loans or credit in case of a lower score.
See also: Easy Ways to Manage Your Personal Loan Payments
Step 1: Starting with a Secured Credit Card
The best way to begin building an excellent credit score is through a secured credit card. Secured credit cards are far removed from the typical credit cards you’d be carrying elsewhere because typically they require placing a deposit or some money as a guarantee. In many instances, the amount you pay into one of these accounts becomes your credit limit. You can use this card to make small purchases and pay back the full amount each month, which builds up a good payment record.
Step 2: Open a Bank Account
Besides savings, having a checking or savings account could better manage one’s daily funds, but it is part of the general process of building credit. Some banks have credit-building loans or products, especially for new borrowers. Other savings accounts, such as a checking or savings account, besides saving, would help with fund management for all daily activity but may also be part of the process for creating credit.
Step 3: Become an Authorized User
If you have good-credit family or friends, ask them to add you as an authorized user on their credit card. Then you could use their card, but the responsibility will fall on that individual’s shoulders. With the primary account holder paying their bills on time, your good credit history will show up on your report, helping you build up your score without all the responsibility of the debt.
Step 4: Pay Bills on Time
Your payment history is probably the most critical factor that will determine your score. A record of paying all your bills on time—be they rent, utilities, student loans, or any other form of obligation to pay—will indicate reliability for potential lenders. So, it would be prudent to set up automatic payments or reminders so that one never misses one of those due dates.
Step 5: Monitor Your Credit
As you increase your credit, though, do monitor the credit report. Most financial institutions and credit bureaus give free access to a version of your report so that you can check with these sources for monitoring purposes. You also have the power to detect errors or fraudulent activity, which could work against your score.
Conclusion
Building credit for an instant loan app takes time, but these apps help improve your credit score by enabling a positive repayment history. It needs time and responsibility. Opening a secured credit card, creating a bank account, becoming an authorized user, paying bills on time, and scrutinizing your credit report will put you in a great position to build a great financial structure from which you can spring toward other ventures.
