There was a time when people loved possessing a credit card since they could buy anything they wanted, even if they were short on cash. However, many people soon found themselves drowning in debt and bad credit score since they could not make the payments on time. Nowadays, many people are avoiding having credit cards altogether for a number of reasons, some of which include not wanting to pay high-interest rates or EMIs. Others want to stay away from spending money they don’t have and the resulting debt.
The good news is that you can build your credit score even if you don’t have a credit card. If you have a zero to bad credit score, here are 6 ways you can build a positive and strong credit score:
1. Personal loans
Often referred to as unsecured debt, personal loan means that the loan is not backed by any collateral such as a car or a home. Since the loan is unsecured, the financial institutions will charge higher interest rates to the borrowers. If you have zero or a low credit score, then you would have to get a cosigner without which the interest rates would be higher than most other borrowers.
If you do get a personal loan, make sure you have a legitimate purpose instead of getting it for the sake of it. Invest the money wisely and you can increase the credit score.
2. CD Secured Loans
You can opt for a CD loan if you don’t want to apply for a personal loan. It is a type of personal loan that you can get by putting up a certificate of deposit as collateral. If you default, then the bank can take the money in your CD. The interest rates on CD secured loans are low. You can use them to build or rebuild your credit history. Qualifying for a CD loan is much easier as compared to other loans and is a good option for those with little to no credit history. Make timely payment until the loan is paid off and you can build a positive credit history.
3. House Rents
If you pay your rent on time, make sure that it is reported to the credit bureaus. Most landlords don’t report on-time payments and the only time rent-related credit data is collected is if your debt is sent to a collections agency. This will affect your credit score in a negative way. When this happens, the only way rent normally affects your credit score is in a negative way. You can either confirm with your landlord about the payment reports or contact companies that could report your rent payments to credit bureaus.
4. Student Loans
If there is any payment on a loan you make, then it would be reported to all the three credit bureaus. If you had taken a study loan, ensure that all the payments are done on time as they will be reported.
If you are considering taking a loan for college, remember that any loans that you receive to go to college will strengthen your credit score.
5. Peer Lending Loans
The peer lender loans report every on-time payment or late payment to the credit bureaus. If you get a peer lender loan, the interest rate would be pretty high but the loan limits are higher than a credit-builder loan which gives you more flexibility.
6. Secured Credit Cards
This is like a credit card but not in the traditional way that you would know of. Secured credit cards allow you to get immediate access to the funds. It is no risk to the lender since you have to first deposit money to the lender. The amount deposited would be equal to the card’s first balance, therefore, the more money you deposit, the more credit you will have. Essentially, you would be borrowing from yourself. Whenever you use the card, you will have a balance which is the same as that on a credit card. Pay the balance on time each month and your credit score will significantly improve as it would with a credit card.
Whether you apply for a personal line of credit or choose another option, make sure you have a good credit score for a secured financial future.
Author Bio: Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning company based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last ten years has turned his focus to self-directed ira accounts and alternative investments.