One of the most intelligent ways to access credit and benefit from it is by turning to the responsible use of credit cards. However, the unconventional and unplanned use of credit cards can lead to a wasteful lifestyle which can mess up one’s credit rating score.
An unarguable fact is that credit cards offer one of the easiest ways to credit access. However, this easy access to credit that credit cards avail has pushed of most people from owning credit cards. In fact, a recent study by bankrate.com reported that 6 out of 10 people aged between 18 and 19 do not own a credit card. The reason behind this is that most people fear that owning a credit card can lead them to accumulating debts which will eventually hinder their financial development.
Michael Chadwick, a certified financial planner from Unionville, advises that some people ought to stay away from credit cards which he states that are like a drug which may hook them up.
However, whether one does not want a credit card or cannot trust themselves with how they use it, little options are as good as credit cards when it comes to accessing credits. When one desires a house or a car but they cannot buy it without a loan, they are most likely not going to get a low interest loan without a nonexistent or low credit score.
The following options can enable you to build an attractive credit score without necessarily owning a credit card.
Use a student loan to build credit. It has been estimated that Americans owe up to $1.2 trillion in student debt on federal loans of 6.8% interest and private loans of interest as high as 14%. Edvisors.com, an organization that helps students understand how to fund their education, recently reported that 2015 graduates from American colleges and universities left campus with an average student debt of $35,051. For parents who pay for tuition, their average loan debt is estimated to be $30,867.
Although painting a dark picture, April Lewis-Parks who serves as the director of education and corporate communication at Consolidated Credit Counseling Services, Fort Lauderdale, Florida sees it differently.
He explains that federal student loans help people with limited credit history to access financing even if they have bad credit or no credit at all. Such loans, as per to April Lewis-Parks, help people to build credit as they pay off the federal student loans.
A car loan can also be used to build credit. Having a car loan can be a better way to build your credit score. As you pay on time, the on time payments are reported to the three major credit bureaus. If you repay the loan longer and without problems, the better your credit score develops to be.
The appropriate and responsible use of credit cards allows most consumers to access financing to buy cars. Even without a credit card one can still be able to access financing to buy a car. However, the involved bank or credit facility will have to follow the credit card use history of those close to you, say relatives, in order to determine your eligibility to such a loan. If they trust this history, even without a lending history, you can still be able to acquire financing to buy a car especially when planning to buy a cheap, used car.
Use a bank loan to build credit. Bank managers and tellers can help you get a bank loan faster if you are a regular customer to the bank and they know you well. Alisa Livesay, a certified public accountant and lecturer at the University of Dayton, advises that if you have money or savings invested in a certificate of depository, it can be used as collateral for the loan you will get.
Livesay also advises that one should go for credit builder loans which, although popular with credit unions, some banks have them too. These do not require any collateral because all that is needed is a record of whether you are a veteran who has been able to suffice all the credit that he/she has received with the involved institution.
Bank loans have however been noted that they serve as a secured credit card in which there is security cash just in case the loan fails. Livesay adds that in these loans, one pays a specified amount for some time which will then be used as collateral for future credit.
Use regular bills to build credit. Although not as practical as simply stated, it does work in some very specific cases. Paying your regular bills on time and regardless of the length of time will not show as a positive on your credit score. However, any failure to pay up regular bills on time will be used on your credit card score and it will end up portraying you negatively in terms of credit payment.
Consumers who pay their regular bills within specified schedules still wonder whether their payment trends can be used to positively portray them as good creditors.
Ken Chaplin, a senior vice president of TransUnion, advices that tenants who pay their rent on time can ask their landlords to report their good payment trends to one of the three credit bureaus. Although it is not a debt and won’t affect your credit score, it will help show that you are good in repaying credit. However, this will work if you agree with the landlord, whichever way you will, to take up this extra task for you.
You can also use services like rentalkharma.com to report your payment of regular rent to TransUnion and PRBC.com, whose main focus is utilities. Such a company creates a report of your payment trends and can vouch for you in case you need a loan.
Use a non-plastic loan to build credit. In case you need to borrow, you must demonstrate that you have borrowed and repaid from an institution that reports to any of the credit bureaus. You can turn to non-plastic loans if you need to develop your borrowing history.
Rakesh Gupta, a professor at Adelph University argues that without a history of owning a credit card or ever receiving a loan, your creditworthiness is undetermined.