Before thinking of applying for a loan, you need to be aware that you would require some credit history. Some people may have a bad credit history, while some may not have a credit history at all. These two scenarios may look similar, but they are not.
The person with bad credit history has proven records to show why they cannot qualify for a loan. The person with no credit history might have good credit potential; it’s just that the lenders or financial institutions do not know it yet.
Are you thinking of getting a loan, and you are wondering how to build your credit history, as well as how long the process might take? Then read on, as this article has the answers.
How can you get a loan with little or no credit history?
Generally, big banks and financial institutions don’t offer many options for people with little to no credit history. However, some online lenders, as well as local credit unions, are a place to begin your search for access to loans with little to no credit.
Loans are not often secured without prior planning or deliberation. If you’re thinking of taking a loan in the future, then make an effort to start building a good credit history now.
Fast ways to build your credit history.
Ensure prompt payment of bills
This is one factor that helps increase your credit score. It makes up for as much as 35 percent of your credit score. Payment of your bills when due or even before the due date will increase your credit ratings. To ensure that you pay your bills on time, set up automatic payments from your bank account. This helps you get costs early and when due as long as your bank account has funds in it.
However, if you don't want to go the automatic payments route and miss a due date by chance, contact the lender immediately to resolve the issue. When you overly exceed your due date for repayment by as much as 30 days, you will be blacklisted by the credit bureau, alongside the negative effect it will have on your credit ratings.
Get a secured credit card.
Getting a credit card, especially a secured one, tends to boost your credit ratings. This is a good idea when you are not eligible to get an unsecured card yet.
When you have a secured card, you are required to make an initial deposit as collateral, and you are a bit restricted in your purchasing power with the card.
It helps raise your credit score because the card company regularly gives reports to the credit bureau. If you consistently pay back on your credit, this will reflect in the records and help you build your credit history faster.
Get added as an authorized user on an existing account.
The reason for this is that, as an authorized user, you can make use of the card assigned to that account, but you don’t get to make any payments. When you are added to an existing account, in which the owner of the account has a good credit score, it will automatically reflect as yours, which will boost your credit ratings when you apply for a loan.
Apply for credit-builder loans.
These are loans that are specifically tailored to help you build your credit. To apply for such, a set amount is agreed upon, and then payments are made monthly to the lender, which in turn reports to the credit bureau. Upon completion of the "loan", the total sum you paid will be returned to you, excluding necessary charges, and this helps you increase your credit score.
How long does it take to build your credit score from scratch?
This practically takes about six months. According to the FICO, you’re to have a minimum of one credit account opened for at least six months and have a record of activity reported to the credit bureau.
To sum up
Building your credit ratings is not a challenging endeavor. You only have to ensure you take the required steps as outlined above.
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