In my credit-invisible state, I had to get prepaid credit cards for six months before eventually being accepted for a traditional card with a low limit of $500. As my repayment history grew month after month, I was offered more cards and larger limits, which I took to improve my rating, just as Weston advises. And it helps to have multiple lines of credit.
“It used to be that lenders would look at all your available cards and think, ‘Oh my God, she could go crazy tomorrow and max out her cards and not be able to pay,'” said Weston. “But they realized that the exact opposite is true: People who use credit responsibly tend to continue using credit responsibly.”
Auto loans, mortgages and other installment loans also help diversify your mix of credit and look good to lenders. “Lenders kind of rely on one another — if one lender says you’re creditworthy, the next lender feels a little more comfortable,” Weston explained. (A car loan wasn’t a good option for someone like me, living in Manhattan without a driver’s license.)
If you need to build credit relatively quickly, Weston recommends a credit-builder loan, available at many smaller financial institutions or credit unions. The terms vary, but you can apply for, say, a one-year, $1,000 loan.
“You make the monthly payments, but you don’t get the money up front,” says Weston. “At the end of the 12 months you get that money.” In that time, you will have established your credit (if you’re starting from scratch, you can get to a score in the mid-600s, Weston says; if you can add a credit card to the mix, your score should climb even higher) and built up an emergency fund — something many Americans don’t have. It’s a win-win.
Source : CNBC
