How to Build Your Credit: Part II

Installment Credit

In addition to revolving credit, you also will want to venture into an installment plan or two to help build your credit. Contrary to revolving credit, an installment plan involves a one-time disbursement of credit that subsequently is repaid through periodic payments. Auto loans, mortgages, and personal loans all are examples.

While obtaining a mortgage might be out of the scope of your immediate goals, attaining a small loan with a short time-frame from your bank or credit union is a wise idea. Just be sure to make your payments on time.

Take Advantage of Someone Else’s Credit.

Really. One way to build up your own credit is to attach yourself to someone else, such as a parent, who already has established good credit. By becoming a joint- or authorized user on a credit card, or by having someone vouch for you as a co-signer, you may be able to obtain credit that would not be possible otherwise. Your diligence in repayment can be a great way to boost your credit.

If you become an authorized user on another’s credit card, be aware that their credit history may show up on your report. If their history is good – great! If it is tainted however, you may hurt your credit before you even have a chance to build it up! Confirm with your lender before signing up whether or not your co-user or -signer’s history will affect your report.

Likewise, you want to be certain - if building up your credit is the goal - that the lender will report your account information to all three credit bureaus. Some lenders only will report the primary user, which will not help you in your efforts.

Other Considerations

• No matter which alternatives you use to help build your credit, confirm ahead of time that your lender will report to all three credit bureaus. If they will not, your account will not help to build your credit.

• Two elements that build your credit most consistently are your ability to pay bills on time, and limiting the amount of available credit that you use.

• If you are married, you should build credit regardless of the credit history of your spouse. In the unfortunate event of a divorce or death, you will have to rely on your own credit history.

• After you have started to build credit, you likely will receive numerous other credit offers. Take only what you need; now is not the time to disprove all the credibility that you have just gained!

• In order for a consumer to have a credit score, he or she must have had credit for at least six months, and must have had action on at least one account in the past six months.

• Even if you are just starting to build credit, check your credit reports to see where you stand, and also to look for any unusual activity that might indicate identity theft.

• Though it goes without saying, it really must be said: you do not only want to build credit, you want to build good credit. Most negative marks stay on your credit reports for seven years, while bankruptcies stay on for ten and very serious indiscretions remain indefinitely. A seemingly small error in judgment can build your credit the wrong way.

Conclusion

It is necessary to use credit in order to build your history, but the bottom line is that you only should borrow when it is in your best interest. Start early, and borrow and repay various types of credit consistently and responsibly. Your diligence will pay off, and you will be able to make the most of available credit in the future.

Go to Part I of this article.