Building and Rebuildling Credit

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creditbuilding

creditbuildingI’m not talking about whether or not you deserve respect or great things in your life (because of course you do!). I’m talking about your creditworthiness. Being creditworthy means having a strong credit history and someone lenders would like to lend money to. If you don’t have a strong credit history, it may have been the result of past problems, like unemployment or a health crisis. Or you may have a “thin” credit history, meaning you haven’t used a lot of credit or haven’t used credit for a long time. Both a negative record and a thin record can make it harder to borrow money or open up new accounts, and that means you might need to consider strategies to build or rebuild your credit.

So what exactly is credit building and rebuilding, and how do you do it?

What is credit building? “Credit building” is when someone with a thin credit record opens new accounts in order to increase their credit history or establish a credit score. You need a minimum of one account that has been open for at least six months to establish a credit score. Strategies for credit building tend to focus on opening up new accounts.

What is credit rebuilding? “Credit rebuilding” is when someone has a credit score, but that score is lower than they would like to have. Someone trying to rebuild credit may tend to focus on paying off debt, and sometimes closing accounts.

How do I begin to build or rebuild my credit? If you want to improve your credit history, there are a few options you can get started with:

Open up a Secured Credit Card: Secured credit cards are cards offered through banks and credit unions to help you build credit. Unlike a regular loan where you borrow money upfront, you deposit funds into an account and then use your card regularly and pay your balance in full every month. If you have a good record with your card, this can help establish new credit or improve your credit score.

Take out a Credit Builder Loan: Credit builder loans are accounts offered through banks, credit unions and some nonprofits to help you build credit. Unlike a regular loan where you get money upfront, you make payments on the credit builder loan over time and the bank puts the money in an interest-bearing savings account. Once the loan is paid off, you get access to your money. If you have a good record and make on-time payments, this can help establish new credit or improve your credit score.

Become an Authorized Account User: Becoming an authorized user on another person’s credit card means that the account holder’s payment history will be reported on your credit files as well. If the account holder has a good record, this can enhance your credit score (even if you never use the account). However if the account holder begins missing payments, that can negatively impact your credit score.

However you choose to build or rebuild your credit, just keep in mind that almost all of your financial decisions get reported somewhere and can have a big impact on your credit history and credit score.