If you’re trying to bounce back from a bad credit score, you may have heard that responsibly using a credit card is one of the best ways to help build your credit back up. But if you’re like a lot of people who are trying to improve their credit, you may want to just avoid credit cards entirely, especially if credit card debt is what brought down your score to begin with. The following ways can help you establish credit without using a credit card:
Get a secured credit card
Secured credit cards are different from traditional credit cards and prepaid cards. Traditional credit cards involve borrowing money and they are unsecured loans. These types of cards, however, are secured by your monetary deposit. A secured credit card can be used the same way you’d use a traditional credit card or debit card—you pay a monthly bill and can charge on it wherever credit cards are accepted.
Piggyback on someone else’s good credit
If you have a family member with terrific credit, consider asking if they would be willing to make you an authorized user on one of their credit cards. By just being on that person’s credit card—even if you don’t make charges on your own—you can expect to see an improvement in your score. Just be sure that this person has a great score and is timely with the credit card payments before you get added on. Otherwise, your credit might drop, instead of improve.
Put at least one household bill is in your name
For a while now, household bills, such as monthly utilities, were not usually affecting someone’s credit when paid on time. They were usually only appearing on credit reports if accounts are past due and turned over to collections. But this is beginning to change, and some service providers are starting to report all payment history to credit bureaus. Ask your service providers if they do report favorable payment history. If they don’t, ask if it’s possible–your service provider might be willing to write a letter of reference, at the very least. This can be helpful when applying for loans as you work on improving your credit.
Borrow money through a credit builder loan
You may be hesitant to borrow money at all, but consider the benefits a credit builder loan, which has been designed exclusively for consumers trying to improve their credit. Credit unions and banks will sometimes provide these small loans with certain conditions and terms that don’t usually apply to typical loans. With credit builder loans, debtors put a small amount of money into an interest-bearing account, thus making it a secured loan. The borrower receives that money back after paying off the loan in full. This can help to improve your credit, just like an unsecured loan or credit card can, but is usually less risky because there is no temptation to buy a lot more than you can afford to pay back.
Look through your credit report for errors
Did you know that many credit reports have mistakes? Even if you know your bad credit is the result of past due payments and/or large amounts of debt, even just one mistake on your credit profile can be bringing down your credit rating even more. Go through your credit report very carefully and on a routine basis; look into anything that doesn’t seem right. If you find any mistakes on your credit report, take action by disputing them.
Are you receiving long-term payments from a structured settlement? If you’re in a lot of debt and trying to improve your credit score, paying off overdue debts can help. However, this is often easier said than done. While the money from your structured settlement can make things much easier, receiving the money periodically and in smaller installments may not be enough to make a dent in those past due debts. Consider selling all or a portion of your future payments and receiving that money in a lump sum. Receiving your money all at once can make it easier to take care of large amounts of debt. Contact us today to learn more and to get started!
Nothing above is meant to provide financial, legal, or tax advice. You should meet with appropriate professionals for such services.