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How to Build and Diversify Your Credit

On our last topic, we talked about the new FICO scoring model, UltraFICO, that works by using the information from your checking, savings or money market accounts to provide you with a better credit score. This new scoring model is intended for those who have no credit, or are in the upper 500 to lower 600 range. One of the steps to opt in to this new program require users to share their banking information with lenders. While some of you may not be completely comfortable with sharing such personal information, there are alternatives available that can help you build and diversify your credit without having to share your checking and savings information.

Below are 5 options to consider:

Get a Secured Credit Card
The difference between a prepaid debit card and a secured credit card is that a secured credit card will help you build credit while a prepaid debit card will not. A prepaid debit card will allow you to load a certain amount of money into the card. You would use the card for everyday purchases and once the balance hits zero, you won’t be able to use it until you load more money into it. A secured credit card requires you to put a set amount in the card which is used as collateral against the credit limit. Ideally, you want to use your secured card just like a normal card and pay your bill as normal. In the event that you fail to pay your bill, the bank will claim your deposit money. You want to make sure to pay your bill on time as that’s what will help you build your credit! Eventually, your limits can increase once the bank sees you can use the card responsibly. Make sure to apply for a secured credit card from a reliable and legitimate bank or credit union that reports to all three of the major credit bureaus. You should keep in mind that there’s no guarantee you’ll be approved for a secured card just because you can make a deposit. If you don’t meet certain conditions, your application may be declined. Make sure to do a little research first and make sure you understand all the terms and conditions of the card. Installment Loans With a good strategy, you can help improve your credit mix, which accounts for 10 percent of your score! So, how does this work? Credit cards are considered revolving credit because there’s money constantly moving in and out. However, installment loans have a beginning balance that you pay down over time. Mortgage loans and car loans are a great example of an installment loan. Adding an installment loan to your credit mix will help to diversify your accounts. Paying your installment loans on time will help to increase your credit, in addition to reporting consistent monthly payments.

Installment Loan Alternatives
If you’ve never heard of Self Lender, you may want to consider signing up for it in order to build credit. This type of credit-builder loan does not require money upfront, you just need to be able to make monthly payments. The difference with a secured credit card is that you would have to pay the deposit up front, which is usually your credit limit. With Self Lender, you won’t be able to access the money until the loan is paid off. Once you’re approved, the loan amount will be deposited into a CD insured by the FDIC. You will have the chance to choose either a 12-month or 24-month loan. The monthly payment will depend on the loan you choose and there is a non-refundable administrative fee to activate your account. Once you have paid the loan in full, the money will be released to you. This is a great way to save money and establish credit history safely as they do report to all three major credit bureaus.
If you want to learn more, or are ready to sign-up, just click the link below:
Become An Authorized User
The age of your credit history is also an important factor in calculating your score. One thing you can do is become an authorized user on someone’s account who has already established credit history. Try to ask a friend or parent who has lengthy credit history from old accounts to add you as an authorized user and you’ll be able to reap the benefits! One thing to keep in mind when it comes to becoming an authorized user is that since this account will be added to your own credit report, you want to make sure the primary account owner has a history of on-time payments and a low utilization. If their utilization is really high on the account or they have late payments, this will affect your score negatively.
You should continue to demonstrate financial responsibility to build and improve your score over time. These steps will help to accelerate the process in addition to providing you with a more diverse credit portfolio.
To learn more, please watch this video from Keeping it Real with Credit.

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