Typically, a regular debit card doesn’t contribute to building credit since it uses your own funds instead of a credit line from a lender. Credit, on the other hand, involves borrowing money that is paid back later with interest, such as through a loan or credit card.
However, there are now innovative debit cards emerging that challenge this conventional approach. These new cards are linked to your bank account, but instead of immediately deducting funds after a purchase, the card issuer covers the cost and then withdraws the money from your account the following day.
These transactions are reported to credit bureaus as repayments, potentially enabling you to establish credit without incurring significant debt.
Additionally, there are alternative methods to help build your credit history or enhance your overall creditworthiness, which we will discuss further in this article.
5 ways to get Credit
1 – Open a secured credit card
Consider obtaining a secured credit card if your limited or nonexistent credit history makes it challenging to get a regular credit card. Secured cards require a deposit (usually $50 to $300) into a separate account, which then becomes your credit line. As long as your payment history is reported to the credit bureaus, using a secured card responsibly can help you build credit. Some secured cards also offer the option to transition to a traditional credit card in the future.
2 – Find a co-signer
To open a traditional credit card or secure a loan when starting from scratch, having a co-signer with a good credit record can enhance your chances. Lenders and credit card companies may view your application more favorably when you have a co-signer. Remember that both you and the co-signer share responsibility for the debt, so ensure that they understand the implications before proceeding.
3 – Become an authorized user
Another approach to build credit is becoming an authorized user on someone else’s credit card, preferably a trusted individual with a solid credit history. By doing so, you can obtain a credit card in your name associated with the main cardholder’s account. Be cautious as any negative payment activity by the primary cardholder may impact your credit history. Research the credit card issuer’s reporting practices before becoming an authorized user.
4 – Consider credit-builder loans
Credit-builder loans can be an option for establishing credit. These loans work differently from traditional ones, as you may need to make payments or pay in full before accessing the borrowed funds. Typically, credit-builder loans are smaller in size, and you may still need to pay interest. However, the advantage is that you can begin building your credit history.
5 – Explore Credit Karma’s Credit Builder plan
Credit Karma offers a Credit Builder plan that helps you save money while building credit simultaneously. After deciding on a savings goal, the money is deposited into a locked account, and you make monthly payments. Once you’ve saved at least $500, you can access the funds. This approach allows you to establish credit through responsible savings and payment habits.
5 ways to establish healthy credit habits
1 – Review your credit reports regularly
To start building healthy credit habits, it’s crucial to read your credit reports and check for any errors. You can request free credit reports every 12 months from annualcreditreport.com without affecting your credit. Regular monitoring helps ensure the accuracy of the information.
2 – Make timely payments
Paying your bills on time is vital for your credit scores and overall credit health. Set up reminders or use a calendar to stay organized and ensure timely payments. Remember, even if an account isn’t reported to the credit bureaus, overdue bills sent to collections can still harm your credit.
3 – Maintain low credit utilization
Credit utilization refers to the portion of your available credit that you utilize. It plays a significant role in determining your credit scores. Keeping your credit utilization low, preferably below 30%, demonstrates responsible credit management and enhances your creditworthiness.
4 – Avoid excessive credit account openings
While having a mix of credit accounts can benefit your credit history and health, avoid opening multiple accounts in quick succession. Rapidly opening numerous accounts can have a negative impact on your credit scores. It’s important to strike a balance and manage your credit applications wisely.
5 – Keep your credit accounts open
Maintaining the longevity of your credit history is essential. While the impact of credit history length is not as significant as payment history or credit utilization, it still matters. Keep your credit accounts open for a longer duration, demonstrating stability and responsible credit management.
Well, by following these steps and maintaining good credit habits, you can steadily build a positive credit history and improve your overall credit health.
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