by: John Egan
Mi gente, how many of you have tried to build a house brick by brick? Not all of us, but we do know how hard it is to maintain it. Let’s face it, nothing says “it’s Saturday morning” more than the sound of our vecino mowing the lawn or trimming tree branches. Well, building our credit is like building our home sweet home— it’s hard and it takes time, minus the noise. But they’re both rewarding.
Well, we can’t tell you how to build your castle, but we’ve got seven tips for how to build your credit.
- Check out a secured credit card.
A secured credit card requires you to deposit a set amount of money, such as $500. That money then becomes your line of credit.
“There are many secured cards to choose from, but you need to look at all the [interest] rates and fees carefully,” says consumer credit expert Beverly Harzog, author of “The Debt Escape Plan.”
Be aware that some secured credit cards will “graduate” you to a traditional (unsecured) credit card once you’ve proven you’re a responsible borrower. Others don’t, according to James Garvey, co-founder and CEO of Self Lender, which offers credit-builder loans.
- Ask for help.
Can’t get a credit card on your own? Then see whether a relative — maybe your padre or your abuela — will add you to an existing credit card. However, that won’t help you if the relative who opened the credit card account has a poor credit history, Harzog warns.
- Consider a credit-builder loan.
If you’ve been rejected for a credit card or can’t be added to somebody else’s credit card account, a credit-builder loan might be a good option. Once you’ve paid off the loan, you’ll have an established credit history. Use the loan to soundproof your home from your noisy vecino feeding roosters at 3:00 am.
“A credit-builder account is almost like a savings plan that lets you build credit. It’s a tiny 12-month loan that’s tucked away in a 12-month CD,” Garvey says.
With Self Lender, you can apply for a credit-builder account for free; there’s a $12 fee to activate the account after you’re approved. Self Lender’s three credit-builder plans help you save $550, $1,100 or $2,200 over 12 months.
Under the $550 option, you’ll pay $48.50 a month for 12 months. During that time, your loan payments are reported to all three credit bureaus. When you’ve paid off the loan at the end of 12 months, you’ll have a credit history — and you’ll get back the $550 plus interest.
Alternatives to a credit-builder loan include getting a car loan, which is one of the easiest types of loans to obtain, and making student loan payments on time, according to Experian, one of the major credit bureaus.
- Make credit card payments on time.
It’s OK to make the minimum payment on your credit card each month, but we shouldn’t make payments past the due date. Paying past the due date, may mean paying a late charge or worse, having the late payment show up on your credit report, says credit counselor Julie Marie “The Credit Lady” McDonough, author of “How to Make Your Credit Score Soar.”
Consider putting your bills on auto-pay so your bills always are paid on or before the due date, says Erik Carter, a certified financial planner with Financial Finesse.
- Don’t use all of your available credit.
Why is this important? Because as much as 30 percent of your credit score is based on your utilization ratio, or how much of your credit you’re using compared with how much credit you have available.
Harzog recommends keeping the utilization ratio below 30 percent. If you’re trying to build credit more quickly, she says, then keep the ratio below 10 percent.
- Check your credit report.
Looking over your credit report lets you make sure there aren’t any errors that could lower your credit score. You can get a free credit report from AnnualCreditReport.com or from many personal finance websites. Think of it as checking your roof for any leaks. It’s all about keeping your house ready for hurricane season.
- Have rent and utility payments reported to credit bureaus.
Experian says that if you’re good about paying your rent and utilities, you should ask your landlord or utility providers to report your positive payment history to the major credit bureaus. Rent and utility payments normally don’t show up on your credit report — unless you’ve really screwed up those payments. So, if building la casa and then renting it, report it. Trust us, if we screw up, they’ll be reporting us. Make sure credit bureaus know the good too!