building credit

6 Ways New College Grads Can Build Credit

Lindsay VanSomeren — Thu, 31 May 2018 08:30:22 +0000

Your credit might be the last thing on your mind after you graduate. After all, there's so much excitement going on with finding a new job and a new place to live, and launching yourself into the full-fledged adult world.

With all of this going on, it's no wonder that 46 percent of soon-to-be college graduates have never even seen their credit report, according to a 2016 Experian survey. But if you can take a second to plan ahead, you can help unlock your future financial goals more easily by building your credit now.

Starting early is important because a good credit record takes some time to build. You'll want good credit when you go to apply for a credit card, car loan, or mortgage later on. And these days, it's not just lenders who look at your credit record, but also landlords, car insurance companies, and even some employers. (See also: 6 Ways Life Is Better With Good Credit)

Luckily, building your credit isn't as hard as it sounds. Here are the six best things you can do now to start.

1. Apply for a credit card

This might sound counterintuitive, but using credit cards wisely is the fastest way to start building credit. FICO, the credit scoring model that most lenders use, weighs revolving credit such as credit cards heavier than installment loans such as your student loans.

Perhaps you already have a student credit card that you've handled responsibly — if so, you're off to a good start. But if you have no credit history, you may need to become an authorized user on a parent's credit card. As long as your parent pays their bill on time and keeps their balances low, you'll benefit from their good habits. At the same time, you won't be contractually responsible for the debt on the credit card (your parent may have other ideas, though).

Another option is to apply for a secured credit card. A secured card charges you an upfront deposit, which is often about the same amount as your credit limit. That makes the card very low risk to lenders, and therefore fairly easy for credit newbies to qualify for. Keep your balances low and pay every bill on time, and you should be able to upgrade to a regular credit card in about six months.

2. Never miss a bill payment

Your payment history makes up a whopping 35 percent of your credit score. It's the single biggest factor that makes up your score. Even one late payment can drop your credit score, and once it's on your report, it takes a full seven years to fall off. A late payment on your credit card made when you're 23 can haunt you until you're 30.

That's why it's so important to not miss payments. One of the best ways to combat this is by putting all of your bills and credit cards on autopay. Once you do that, you don't even have to think about paying them. (See also: The 5 Things With the Biggest Impact on Your Credit Score)

3. Pay down your student loans

The average college student graduated with over $39,000 of student loan debt in 2017. That's a tough pill to swallow, especially since you may not even have a job yet, and if you do, you may not be earning very much.

But once you start earning money, paying down your student loans can boost your credit score. The more you pay off, the more of a benefit you'll see.

Bonus: If you pay extra on your student loans, you'll pay less interest overall and be free of the debt sooner. Then you can start funneling that student loan payment money to other things.

4. Avoid racking up credit card debt

Credit cards are useful tools for building credit — with one big caveat: Do not rack up a large amount of credit card debt if you can help it. Doing so can hurt your credit score. Your credit utilization ratio — the amount you owe versus the amount of available credit you have — makes up 30 percent of your FICO score. It's the second-most important factor in your score.

This can be especially difficult, because again, you're facing a lot of demands on your money after you leave college and you may be earning the least amount you'll make during your entire career.

One trick that can help is, before you make a purchase, ask yourself: "Do I really need this thing?" If you're tempted too often by your credit card, another solution is to freeze it in an ice block in your freezer. That way you still have access to it if you really need it, but it'll take time (during which you can think) to unthaw the card to use. (See also: 7 Effortless Ways to Prevent Budget-Busting Impulse Buys)

When you do use your credit card, aim to pay your credit card bill in full every month if you can. You'll avoid paying any interest that way, and it will keep your credit utilization ratio low. But that raises the question: If you already have the money to pay off all your purchases, why use a credit card at all?

As stated above, using a credit card builds credit. In addition, credit cards give you protections that debit cards don't provide. What's more, by using a rewards credit card — and paying it off promptly — you can also earn cash back or travel rewards.

5. Check your credit report for mistakes

The Federal Trade Commission in 2012 released a study that said 25 percent of people identified errors on their credit report that might affect their credit scores. Today, with the never-ending wave of data breaches, it's especially important to stay on top of checking your credit report.

To make matters a little more confusing, you actually have three credit reports — one from each of the three credit bureaus: Equifax, Experian, and TransUnion.

You can get a free copy of your credit report from each of the three agencies by visiting AnnualCreditReport.com. You can only check each agency for free once per year, so one way to approach the task is check one agency every four months.

6. Avoid closing any student credit cards you may have

Once you leave your school, you might think it's time to cancel your student credit card if you have one. After all, you're not a student anymore, right?

Surprisingly, it might be a better idea to hang onto the student credit card, or speak with your credit card company about having it converted into a non-student version. That way, you can keep your credit history open and growing with this particular card.

The length of your credit history makes up 15 percent of your credit score. It's also one of the most difficult factors to change because all you can do is sit and wait while the average history on all of your accounts grows with each passing year.

That's why it's a good idea to keep your student credit card open if possible. It'll give you a leap forward in growing this part of your credit profile.

You can do this

Building up your credit can seem like an intimidating topic at first. But trust us: If you've gone through college, you have the skills needed to learn how building your credit works. Now all you have to do is put these factors into practice and you'll be well on your way toward a healthy credit score.

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This article is from Lindsay VanSomeren of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Does Your Teenager Really Need a Credit Card?

Holly Johnson — Tue, 08 May 2018 08:30:26 +0000

Giving your teenager a credit card may seem like a scary proposition, but it could be the safest way to teach them about credit. Credit expert John Ulzheimer says it's just like teaching your teenager how to operate a car, but in a controlled environment. "Nobody would just let a teen hop in a car and drive," says Ulzheimer, who formerly worked with Equifax and FICO. "And nobody should just let their kid get a card on their own someday without some teaching by the parents."

Yet, that is exactly what many people do. The problem is, for a teen, a credit card may seem "no different from using a gift card or some other stored-value card," says Ulzheimer. And that can be dangerous. If they charge more than they can afford to repay, they might wind up dealing with years of debt and regret.

The reality is that your child will need credit to borrow money one day. If they don't build a solid credit history during high school or college, they may start their adult lives at a disadvantage. "Helping your teenager build their credit can make their life easier in the future when they go to purchase a big-ticket item on a line of credit, like a vehicle or home," says Gina McKague, president and CEO of retirement planning firm McKague Financial.

And while some financial experts like Dave Ramsey insist that nobody needs a credit score to get by in life, many argue that thinking is outdated. The reality is, good credit improves your life significantly. "Not only is establishing credit vital for obtaining something significant like a loan, but as more and more vendors exclusively accept payments via credit cards or even smartphones, it can be necessary just for buying lunch," says Jeff Motske, financial planner and CEO of Trilogy Financial in Huntington Beach, California.

Besides lenders, everyone from car insurance companies, to landlords, to employers can ask for modified versions of your credit report. They can influence your ability to get a job, an apartment, or good car insurance rates. If those aren't reasons enough to get your teen on the right track with responsible credit use, what is?

How to get your teenager a credit card

Ulzheimer says there are several ways to know if your child is ready to learn about credit. If they're already using debit cards, prepaid cards, or their phone to make purchases with your credit card information, then they're probably ready to get a credit card with your help, he says. (See also: 8 Websites to Help Your Kids Learn About Money)

Still not sure? A teenager's senior year in high school is often a good time to start. "That way, they're as mature as possible while still living under your roof," notes Ulzheimer.

Once your kid is primed and ready, the best way to introduce them to credit is by adding them as an authorized user to your own credit card account. Doing so comes with several advantages, including the fact that your own positive credit movements will be reported to your teenager's credit report. Not only that, but you will receive the bill, so you can keep tabs on their activity. Just be aware that you and you alone are responsible for repaying every charge your teenager makes.

Ulzheimer suggests teaching your kids to use credit cards only for purchases they were going to make anyway, such as gas or movies. If they have a job, you can even require that they make payments from their own money, he says.

This should be easy to do even though you're the one receiving the bill. When your statement arrives in the mail or via email, simply tally up your child's purchases and let them know what they owe. Ideally, they will also keep a record of what they paid for with credit and have the money saved to pay their share of the bill — just like in the real world.

And if you're worried your teen will fall into some bad credit habits right away, Ulzheimer suggests setting up text alerts so you know exactly when the card is being used. This way, "you can make sure they're not using the card outside the boundaries you set," he says. (See also: How to Help Your Kid Build Their First Budget)

Other ways to introduce the concept of credit

If you're not sure if your teen is ready for a credit card, you can always start them off with a prepaid debit card. "Be sure to establish some ground rules," says Motske. For example, explain what expenses the card should be used for, how long the funds on the card should last, and what criteria would cause you to revoke the prepaid card.

Many prepaid debit cards, such as the Current Card, are geared toward teens. The Current Card runs on the Visa system, so it's accepted at most merchants. Like any other prepaid debit card, you have to load funds into the account before it can be used. But the Current Card also offers enhanced features that help kids budget their money, save for a rainy day, and donate to charity. Parents are able to manage and oversee the teen's purchases with a mobile app and add money to their accounts instantly.

A regular debit card tied to a bank account can also be a good way to get the ball rolling, or it can be a transition tool between a prepaid card and a credit card. You may even want to link it to the child's own bank account, so they can only use money that's given to them or that they earn from chores or a job.

Eventually, however, you want to introduce them to credit cards by adding them as an authorized user to your account. Ideally, you'll want to do this before they leave the nest and wind up dabbling with credit on their own. "Be sure to establish a new set of ground rules with the new card, including the familial and financial consequences of not following those rules," advises Motske.

The idea of giving your teenager a credit card may be the stuff of nightmares. But it could be even scarier to imagine them learning about credit through the school of hard knocks — by racking up a huge mountain of debt or ruining their credit score by not paying their bills. (See also: 10 Credit Card Truths You Wish You Could Tell Your Younger Self)

"By educating your children early about credit and credit cards, you can hopefully help them avoid the pitfalls that so many stumble upon the hard way," says Motske.

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Get Your First Credit Card and Build Credit

Carrie Kirby — Fri, 04 May 2018 08:30:14 +0000

When my husband wanted to propose to me, we were just finishing up college. He went to a jewelry store at the mall and picked out the prettiest engagement ring he could reasonably pay for with a payment plan. He provided his Social Security Number for the credit check — but was disappointed to learn that his credit history was not long enough to qualify to buy the ring on credit.

If you're a college student or around that age, you may not realize how important credit will be in your adult life. Probably a diamond ring isn't the smartest thing to buy on credit anyway. (He ended up proposing using a ring that some student had made in art class and left behind, and I cherish it.) But you'll need an established credit history to rent an apartment without a co-signer, get a car loan, refinance your student loans, or buy a house. And a credit card is a good place to start building credit.

So take these steps to get started on a lifetime of high credit scores and clean credit reports.

1. Make sure you're old enough

I was only an 18-year-old college freshman when I signed up for my first credit card in exchange for a free bottle of soda. But that was before the passage of the Credit CARD Act of 2009. That regulation sets the minimum age for getting your own account at 21, unless you can prove that you have sufficient income to pay off a credit card or you can get someone to help you in one of the ways outlined below.

2. If you're not old enough, start with a partner

There is an argument for getting started as soon as possible, even before age 21, as long as you are mature enough to handle a credit account. That argument is that 15 percent of your credit score is based on the age of your accounts. This means that even when you're 50, your credit score might be a tiny bit lower if you put off opening your first card until age 25 instead of getting right to it at age 21 — or 16.

If you are under 21 and do not have a regular source of income, there are several ways that a parent with established credit can help you get a card.

Become an authorized user

This is a baby step toward using credit, one that I've even entrusted my 13-year-old with. An authorized user gets a nice shiny card that they can present at the cash register to buy things, but the user has zero legal responsibility for paying the bill.

How could this help you build credit? When you are added as an authorized user to an account with a clean payment history, your own credit may benefit in several ways. The credit bureaus recognize that you have access to credit, and some of the cardholder's good behavior may get attributed to you.

But keep in mind that their bad behavior could get recorded on your credit report as well. If your parent, older sibling, or girlfriend has a history of missed payments or accounts in collections, getting an authorized user card on their account will not help you.

Since the bills will be going to your parent or whoever else made you an authorized user, you'll have to come to an agreement with them whether you must pay them back for the charges you incur. Some parents who would have otherwise sent their kids cash at college simply set a limit on how much the student is allowed to charge each month, and pay the bill themselves.

Get a co-signer

If a parent cosigns for a credit card account with you, it means that you are both equally responsible for paying the bill, and the payment record will show up on both of your credit reports. If your goal is to build up a record of on-time payments, getting and conscientiously using a card with a co-signer can achieve that.

Adults who cosign with their kid should be warned that if the kid doesn't make the payments, the parent's credit could suffer — and the card issuer may not notify you that the kid isn't making payments. When the minor turns 21 and is ready to fly on his or her own, you might be able to get the bank to remove the co-signer's name from the account, or you might have to pay off the account and close it, then have the young adult open a new account on their own. (See also: Should You Cosign Your Teen's Credit Card Application?)

Get a guarantor

A guarantor is like a co-signer in that she is responsible for paying the debt if you don't. But unlike a co-signer, she doesn't have the privilege of adding charges to the account. It's also different from a co-signer in that the bank is supposed to exhaust other means of getting the cardholder to pay before they go after the guarantor.

3. Apply for a secured credit card

If you are old enough to apply for that first credit card on your own, don't bother applying for one of those high-end cards with all kinds of great perks. In fact, you may have to start with a secured card, which requires that you put down a refundable security deposit of anywhere from $200 to several thousand dollars. Often, the credit limit is equal to the deposit, so the card issuer is protected if you don't pay.

Research secured cards carefully, as some of these low-end products have high fees or interest rates. But there are good ones out there. Some secured cards even pay rewards points. Just don't get so distracted by rewards that you ring up charges you can't pay off by the end of the statement period. You'll be charged interest, and those charges usually far outweigh the value of any rewards you earn.

4. Make regular payments

No matter how you get that first card, the key to building up a good credit history is making on-time payments. Payment history is the single biggest factor in a FICO credit score, weighing in at 35 percent. (See also: The 5 Things With the Biggest Impact on Your Credit Score)

Remember that you are responsible for paying on time even if the bill arrives in the mail late or gets lost. Many cards offer text or email alerts to remind you when the payment is due. You can also set up an autopay from your checking account so that your payment is never late.

5. Pay in full each month

You'll notice when you get your first bill that you're not necessarily required to pay for everything you charged that month in order to be considered on time. Most cards allow you to make a minimum payment now, and pay the rest off later.

This is a bad idea. Not only will you incur interest charges if you do that, but it can also slow down the improvement of your credit. That's because the balance you're carrying will appear on your credit report as part of your total debt. Your credit utilization ratio is the second biggest category affecting your FICO credit score after payment history. Basically, the more of your available balances that you're using, the worse it is for your credit score.

6. Get out of the dorms

Living in the dorms does nothing for your credit score. But if you get an apartment and pay the rent on time, those payments can go down on your credit history just like on-time credit card payments.

Of course, if your name is not on the lease and you just pay your roommate cash each month, it's not going to help your credit report. Also, not all landlords report rent payments to the credit bureaus — if you're serious about building credit and confident that you will never pay late or break the lease, consider asking your landlord or property management company to start reporting.

Just like that first credit card, you may need a parent to cosign your lease with you. (See also: How Alternative Credit Data Can Help Those With Little or No Credit)

7. Keep your charges low

Just because you have access to a line of credit doesn't mean you should use it all — even if you can afford to pay it at the end of the month. Credit utilization makes up 30 percent of your score. The rule of thumb is to use no more than 30 percent of your available credit, but it's even better if you can use 10 percent or less. So if you have a $1,000 credit limit, you should only be charging up to $100 in a month.

8. Consider asking for a credit limit increase

Having a higher credit limit can increase your score in the long term, because if you keep your charges at the same level, you'll be using a smaller percentage of your newly enlarged available credit. However, there's also a downside to asking for a limit increase: Your card issuer will probably do a hard credit check to verify that you've been using credit wisely so far. Credit checks can cause a small, temporary dip in credit scores.

So what to do? First of all, don't ask for more credit unless you're pretty sure the answer will be yes. Wait until you have been using your card responsibly for a year with no late payments. You can call and ask your credit card issuer if they will do a hard credit check when deciding on a credit limit increase. If they say no, there's no risk at all.

If you decide to ask for an increase, Credit Karma offers good step-by-step instructions for making the call. (See also: 4 Questions to Ask Before Getting a Credit Increase)

9. Don't open a card every time a store clerk offers you one

Often when you're checking out at a store or even online, you'll get an offer of a discount in exchange for taking out a store credit card. Be cautious with these if you are just getting started. Just like with asking for a limit increase, you get a hard credit check every time you apply for a new card. If you have too many credit checks in a short time, it may look like you're desperately applying for a lot of credit because you can't pay your debts. (See also: Store Credit Cards That Don't Suck)

New credit is not the biggest factor in your credit score, but if you are trying to build it, you might as well be conservative. Besides, having too many credit cards can make it hard to keep track of what you owe and remember to pay the bills on time.

10. Understand that your debit card is not a credit card

Many students set up a checking account on their first day at college and receive a debit card that they can swipe at store registers as if it were a credit card. It's not. Because a debit card withdraws money from your checking account as it's used, it does nothing to show that you can handle credit, so the credit bureaus don't count debit card use on your credit report.

Another thing to keep in mind is that debit cards are riskier to swipe and use online than credit cards. A crook with your debit card information could clean out your entire bank account if you don't notice the theft right away, causing you to miss your rent or other important payments while you sort out the problem.

Also, credit cards and debit cards are held to different standards when it comes to covering fraud against consumers. By law, credit card issuers cannot hold you liable for more than $50 of fraudulent purchases, but in reality, most card issuers have zero-liability policies that will absolve you of any responsibility for paying for fraudulent purchases. The law also protects credit card users against fraudulent charges better than debit card users. (See also: Credit Cards vs. Debit Cards: A Comprehensive Comparison)

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This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Best Secured Credit Cards

Jason Steele — Fri, 06 Apr 2018 20:26:02 +0000

Secured credit cards have a bad reputation, and most of these products deserve it. Too often, the companies that offer secured cards do so to prey on those with poor or little credit history by charging exorbitant interest rates and outrageous fees. But using the right product from a reputable institution, holders of secured cards can repair or build their credit while enjoying many of the benefits of standard credit cards that they might not qualify for. (See also: How to Pick the Best Secured Credit Card to Repair Your Credit)

How a Secured Card Works

Standard credit cards are not secured by any property or deposits that can be repossessed in case of default. Therefore, applicants for these unsecured loans must first be able to show banks a strong credit history. On the other hand, almost any applicant will qualify for a secured credit card. With a secured card, the cardholder must first pay a security deposit that protects the bank against the risk of default. In all other ways, a secured card operates just like a standard credit card. Cardholders receive monthly bills that they must pay on time or incur interest and penalties. At the same time, banks will report payment information to the credit bureaus, allowing cardholders to build their credit history.

What to Look for in a Secured Card

Your first priority in shopping for a secured card will be to stick with a reputable bank and avoid the numerous products with high interest rates and unreasonable fees. Shoppers should look for a card with a low annual fee and perhaps one that might earn interest on their deposit. Finally, applicants should be aware that not all banks guarantee acceptance, so those with outstanding liens or a recent bankruptcy will not qualify for some of these cards.

When You Should Get a Secured Card

Those who have poor credit or no credit history may be tempted to just wash their hands of the entire credit card business. Unfortunately, that would be a mistake. Obtaining a secured card and making on-time payments is a critical way to repair or build one's credit. Whether it is right or wrong, companies today use credit scores for any loan application, background checks when hiring, and for setting rates for services such as car insurance. Furthermore, travelers will find it difficult or impossible to reserve a hotel room or rent a car without holding a credit card. (See also: How to Rebuild Your Credit)

This article is from Jason Steele of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Ways to Build Business Credit When You're Self-Employed

Elaine Pofeldt — Tue, 07 Nov 2017 08:30:20 +0000

It's hard to beat the freedoms of being self-employed. But with the joys of being your own boss and creating your own schedule come some trade-offs. One trade-off can be unsteady income.

Even if you are very careful about your finances, it's possible that a great business opportunity will present itself that you simply don't have the cash for. If you've built good business credit and have access to a business credit card or line of credit, it will be easier to jump on those opportunities.

Building good business credit can seem like a mysterious process if you've never done it before. Here's how to get started. (See also: Best Credit Cards for Small Businesses)

1. Establish strong personal credit first

The vast majority of small business credit cards require you to personally guarantee the charges you make — even if the card is issued in your business's name. That means if the business fails, you will still be responsible for the debt.

Because you ultimately will be the one who pays the balance, expect lenders to pay attention to your personal credit when you seek business credit. Under the Fair Credit Reporting Act, when you apply for business credit, a lender has the right to look at your personal credit profile to evaluate whether to issue it to you.

To make sure you have a full array of options when it comes to business credit cards, make sure you are paying your personal cards on time and not maxing them out. A high credit utilization ratio — that is, using a large percentage of the credit available to you — can cause your credit score to drop. (See also: 5 Ways to Improve Your Credit Score Fast)

2. Run your business like a business

If you want to get business credit in the future, keep good financial records by using accounting software such as FreshBooks, QuickBooks or Xero. Using software designed for this is much easier than using spreadsheets and reduces the chance that you'll make mistakes.

Many accounting software programs have a "reports" function that allows you to create a profit and loss (P&L) statement with the click of a button. A P&L statement shows all of your sales and expenses for a set period, such as a year. To get a business line of credit with your bank, you will very likely have to produce one of these statements, so this feature is a huge timesaver. (See also: 5 Free Accounting Tools for Freelancers)

3. Keep your business finances separate

Before you try to open a line of credit with your bank or apply for business credit cards, open a business checking account. This will show lenders you are serious about running your business.

Maintaining a business checking account also gives you an opportunity to develop a relationship with your banker. If money is flowing into your account regularly, you are maintaining more than the minimum balance, and you are handling the account responsibly (i.e., the checks you write are clearing), chances are that your banker will begin to offer you products such as a business credit card and possibly a line of credit.

Don't use your business checking account to pay your personal bills. You need to establish separation between your business and personal finances and keep accurate records.

To open a business checking account, you will generally need a federal Employer Identification Number (EIN). You can apply for one online through the IRS.

4. Use your business credit card strategically

If you don't have strong personal credit, you may still be able to get a business credit card. There are some higher-interest cards designed for people with a "fair" credit score.

While paying higher interest isn't ideal, if you use the card responsibly, you'll be able to improve your credit profile and should qualify for better deals in the future.

Once you get a business credit card, use it regularly to make business purchases and pay the bill on time — ideally in full — to build a history of using it responsibly. Don't use the card for personal spending. If you connect this card to your accounting software, it will be easy to enter your business expenses, saving you a lot of time.

5. Monitor your business credit report

How do you know if you are actually building good business credit once you make these efforts? Use the free searches on Experian, Equifax, or D&B to see if your business's credit is being tracked. (You will have to pay to get the actual report).

There's a different system for business credit card scores than for personal ones. Business credit scores go from 0 or 1 to 100. Each of the major credit bureaus uses its own formula, but factors such as how long you've been in business, your credit utilization, and the lines of credit you have opened in the last six months are likely to affect your score.

If you find your business isn't on the radar screen of the major credit bureaus and you have already gotten your EIN, try applying for a free D-U-N-S number with Dun & Bradstreet, which should get the ball rolling.

All of these steps take some work and can't be done overnight, so start early — ideally a few months before you think you'll need business credit. It'll pay off. Having strong business credit is a valuable asset that you'll greatly appreciate if you ever get into a cash crunch.

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This article is from Elaine Pofeldt of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Reasons Building Credit in College Helps You Win at Life

Dan Rafter — Mon, 28 Aug 2017 08:30:14 +0000

As a college student, your credit score probably isn't a priority. You're too busy worrying about exams, homework, and scraping together enough money for a pizza on Friday night. But building good credit when you're in college is important. It can make it easier to rent an apartment, apply for a good credit card, and buy a car once you graduate. (See also: The 5 Best Credit Cards for College Students)

Many college students graduate with no credit score at all. That's because they've never used a credit card or paid off an installment loan, such as for a car or mortgage. They haven't even started paying off their student loans yet.

Graduating with no credit makes life after college more challenging. Here are five big reasons why you should start building good credit when you're still in school.

1. Renting an apartment

In a recent survey by national credit bureau TransUnion, 48 percent of apartment landlords said that the results of a credit check rank among the top three factors they consider when deciding to lease an apartment to a potential renter.

If your credit is bad, or if you don't have any credit at all, you'll struggle to rent an apartment on your own. You might have to rely on a co-signer, usually a parent, to sign the lease with you. If you can't find a co-signer, and you haven't built any credit while in college, finding your dream apartment, or even just a starter apartment, can get difficult.

2. Buying a car

Unless you buy a car with cash, you'll probably have to apply for an auto loan to finance the purchase of a new vehicle. Auto lenders study your credit, too. If they find that you don't have any history behind you, they'll be far less likely to approve you for the loan you need to buy that new car.

Again, you might have to rely on finding a co-signer. This can be even more difficult for an auto loan. Not only are co-signers on an auto loan responsible for any payments you don't make, the loan will also be counted as their debt. This can make it more difficult for your co-signer to apply for new loans of their own.

Overall, it's much easier to walk into an auto dealership knowing that you already have a credit history of your own.

3. Applying for student loans

You'll want a good credit history if you'll need to apply for private loans to help finance the cost of graduate or professional school. It's easier to get federal PLUS loans for graduate and professional schools with a lower credit score. However, you are limited in how much you can borrow through these federal sources.

If you must borrow more, you might have to rely on private loans. And private lenders will take a close look at your credit. If you don't have a credit history, qualifying for one of these loans will be more challenging.

4. Being approved for credit cards

There are plenty of credit cards out there with low interest rates and valuable rewards programs. They can give you cash back on purchases or let you earn travel rewards when you use your card.

Without a credit history, and the credit score that comes with one, you'll struggle to qualify for one of these good cards. You might instead have to settle for a basic card with a higher interest rate.

5. Getting car insurance

Not having a credit history can even make qualifying for car insurance more of a challenge. If you do want to drive, and you can no longer stay on your parents' auto insurance policy, you'll have to apply for car insurance on your own. And many insurance companies today look at their own version of a credit score when determining who qualifies for insurance and at what rates.

The lower your credit-based insurance score, the less likely you'll qualify for auto insurance — and the more likely you'll have to pay a higher premium if you do qualify.

Building a credit history

The best way to build a credit history while in college is to apply for a student credit card. These cards often come with lower limits. Some might even be secured cards, meaning that you have to make a deposit into a bank account associated with the card. This deposit makes up your credit limit. (See also: How to Use Credit Cards to Improve Your Credit Score)

Once you get a card, use it, but use it wisely. Only buy what you can afford to pay off in full each month. Then pay off your entire balance by every due date. As you generate a record of on-time credit card payments, you'll steadily build a credit history. At the same time, you'll start building a solid credit score, too.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

3 Ways Retirees Can Build Credit

Dan Rafter — Wed, 26 Apr 2017 20:00:10 +0000

You might think that once you reach retirement, your credit score is just one of those things you get to stop worrying about. While it's true that most retirees won't be applying for mortgages, it's not true that you don't need to maintain a decent credit score. What if you want to apply for a car loan? What about credit cards? You certainly won't get the lowest interest rates and best rewards programs possible without a good credit score to back you up.

A low credit score can also hurt you if you want to downsize to an apartment, or even move into a senior living facility. You might need a solid credit score to qualify.

Why it's hard for retirees to build credit

According to FICO, to have a credit score, you must have at least one credit account that is at least six months old. You must also have at least one account that has been updated by a creditor or lender during the last six months.

If you aren't paying a mortgage, paying off an auto loan, or using credit cards, you might not meet any of these requirements. This might lead to you becoming what FICO calls an "unscorable," a consumer who has no credit score at all.

Fortunately, there are ways for retirees to continue building credit. They require the same good financial habits you've been practicing before retirement.

Use the credit cards you have

You might prefer paying for items in cash. Instead, make small purchases throughout the month with your credit card. If you pay off your entire card balance each month, you'll continue to boost your credit score. (See also: How to Use Credit Cards to Improve Your Credit Score

Make sure that you don't charge more than you can pay off by the due date. If you do, you'll be stuck paying interest.

Never pay late. If you pay your credit card 30 days or more late, your card provider will report your payment as late to the national credit bureaus of TransUnion, Experian, and Equifax. This will cause your credit score to plummet. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

Keep unused credit card accounts open

You might have a credit card that you never use, but don't close it. Having open credit card accounts helps your credit score, thanks to something called a credit utilization ratio.

This ratio measures your credit card balances against your total available credit limits, and it accounts for 30 percent of your score. Using too much of your available credit will cause your score to drop, while using a modest amount will help it rise. It's typically recommended that you not let debt tip this ratio beyond 30 percent. If you have a paid-off credit card that isn't getting much use, closing it will lower your overall available credit limit and your utilization ratio will then increase. (See also: How to Close a Credit Card Without Dinging Your Credit Score)

So, keep those unused cards tucked in your wallet. Having that extra credit that you're not using will provide a boost to your score.

Apply for a secured credit card

If you no longer have any credit cards, and you've become an unscorable, you can still build your credit. Your first step should be applying for a secured credit card.

You don't need a credit score to qualify for one of these cards. Their line of credit is based on the amount of money you deposit into an account with the financial institution issuing the card. (See also: How to Pick the Best Secured Credit Card)

If you deposit $1,000 into an account, you can then charge up to $1,000 on your secured credit card. Every time you use your secured card and pay off these charges on time, you'll get a boost to your credit score. Do this long enough, and you can build a score that's high enough to qualify for a traditional credit card.

Again, take the same precautions you'd take with a traditional credit card. Pay your bill on time each month, and never charge more than you can afford to pay in full by your due date.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Reasons to Add Your Teen as an Authorized User on Your Credit Card

Holly Johnson — Thu, 02 Mar 2017 10:30:27 +0000

Giving your kid access to your credit card account might make you squirm, but there are some good reasons to do it. Teens need to be educated about credit before they leave the nest and get their own credit cards. While you could just hand them your credit card whenever they want to make a purchase, there are extra benefits to making them an authorized user on your account.

An authorized user gets a card in their own name and can make purchases just like the primary user on the account. However, only the primary user is responsible for paying the charges. That sounds scary but there are ways to handle the situation so that your child gets the most from it without landing you in debt. (See also: What You Need to Know About Adding Another User to Your Credit Card)

Let's look at the notable benefits that come with making your child an authorized user on your account.

1. Lessons on Credit and Debt

Teenagers may not really understand what credit is until they experience it firsthand. By introducing teenagers to credit early on, they can gain an understanding of what it means to owe someone money — and that every dollar spent must be paid back. They'll also learn about credit card interest this way, and how not paying your balance in full means owing more money over time.

To make this lesson effective, you'll need to establish with your teen that they are responsible for paying the charges they make and any interest they incur. If you simply pay for all their purchases, they'll learn very little about responsible credit card use.

For example, your teen might use their authorized user card for new clothes at the mall without a care in the world. When the bill arrives, however, if you have made it clear that they will have to pay for the charges, they'll be forced to face the consequences of their spending.

If they've kept the cash on hand to pay their bill, they can be proud of that accomplishment. If not, they'll learn what it means to carry a balance and pay interest. And when those $49 jeans end up costing $61, they might feel the pain of their decisions in a way no other method of learning can convey. (See also: 13 Things to Teach Your Kids About Credit Cards)

2. Lessons in Budgeting

The example above presents a great way to introduce kids to another adult concept — budgeting. Whether they're buying clothes at the mall or hitting the movies with friends, they should learn how to budget their money so they can pay their bill when it comes due.

If a teenager charges on their card often enough — and sees that bill roll in time after time — they'll get used to the fact they need to keep enough money handy to cover their purchases.

This lesson can carry through to nearly every aspect of their lives as they become adults. They'll need the money in the bank to cover the mortgage or rent payments one day, for example. They can start developing good habits early by learning to anticipate bills and creating a budget that works with the amount of money they earn, whether it's through an allowance or a part-time job. (See also: 7 Important Lessons Frugal Parents Teach Their Children)

3. Emergency Spending

If you're not too keen on handing your kids cash every day, making them an authorized user on your credit card is a smart alternative. With a credit card for emergencies, your teen may be less likely to waste your "emergency money" on a frivolous purchase. After all, a credit card will create a paper trail that shows parents where that money was spent.

And since emergencies can happen at any time, it's nice to know your kids will have money in the form of a credit card if they end up in a pickle.

4. Credit Building

Perhaps the most important reason to add your child as an authorized user is to help them build a credit history. As an authorized user, the action on your credit card account will likely be reported to your teen's credit report. Assuming you use the card responsibly and keep the balance low, your teen will benefit from your good habits and, over time, earn a good credit score. That foundation can give them a leg up in the financial world for years to come.

Of course, adding your child as an authorized user is just the first step. Once they get old enough, they can apply for their own student credit card that can help them approach credit use with baby steps.

Adding Your Teen: What to Watch Out For

While adding a teen as an authorized user to your credit card account is certainly beneficial for them, that doesn't mean it's risk-free for the primary cardholder — you. As the account owner, you'll be responsible for any charges your teenager racks up — and that's true whether they make a good-faith effort to repay or not.

One way to prevent a catastrophe is to set a spending limit on your teen's authorized user card. With a spending cap in place, their card will be denied if they try to charge more than their limit allows. Unfortunately, only a few cards — most of them American Express cards — allow you to have a separate spending limit for an authorized user.

Worried you won't be able to keep track of your purchases and theirs? One strategy that can keep things straight is to add your child as an authorized user on a credit card you rarely use. That way, their purchases won't become intermingled with yours and you can easily track what they spend and how much they owe.

You can also keep a running tab on what's going on with your card by creating phone or email alerts for every time your account is used.

Whatever you do, make sure to set rules in writing, so they're crystal clear. Let your kid know exactly what they're allowed to purchase, how much they can spend, and how repayment will work. If they appear to be getting in over their head, take the card away from them.

Some children need to gain more maturity before handling credit, and there's no sense harming both of your credit records. In those cases, getting them a prepaid debit card may be a good interim measure for teaching them about budgeting. Prepaid cards don't help them build credit, but they can't hurt anyone's credit record, either.

Whichever way you go, it's important to start teaching your kids early about credit, debt, and bill paying. Your kids will be adults before you know it. Let them learn about money while they're still under your guidance, and they might not have to learn every lesson the hard way. (See also: 4 Signs You're Teaching Your Kids Bad Financial Habits)

This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 After the Holidays Moves Your Credit Score Will Thank You For

Dan Rafter — Thu, 22 Dec 2016 10:00:10 +0000

The fun part of the holidays is over. Now it's January, and your credit card bill has arrived. It's time for the dark side of the holiday season — paying for all that December cheer. If you shattered your holiday spending budget, don't panic: Now is the time to take the steps that will not only improve your finances, but boost your all-important credit score.

Ready to put the overspending and impulse buying of the holidays behind you? Here are five post-holiday money moves that will give you a stronger credit score in 2017.

1. Pay on Time

You might not be able to pay off your entire holiday credit card bill at once. That's unfortunate, because credit card debt comes with high interest. But if you pay off a bit of the holiday debt every month on time, you will be helping your credit score.

The three national credit bureaus of TransUnion, Equifax, and Experian track your on-time credit card payments. If you pay your credit card on time each month, your score will improve. If you are more than 30 days late on a payment, your score will plummet, usually by 100 points or more. And this missed payment will remain on your credit report for seven years.

No one likes holiday debt. But look at it as a way to show the credit bureaus that you are responsible enough to make these payments on time. Doing so will do wonders for your credit score.

2. Do a Balance Transfer

Make a plan that will determine how long it will take you to pay down your current debt, and find a 0% balance transfer credit card that offers an intro APR for that amount of time. Some credit cards offer as much as 21 months at 0% financing. This can save you hundreds to thousands of dollars in interest, and help you pay off the debt faster. Do this only if you have a plan to pay off your debt completely within the intro period. (See also: What You Need to Know Before Doing a Balance Transfer)

3. Don't Close Unused Credit Cards

If you do pay off a credit card, congratulations! That's a great feeling. But don't close that account, even if you never plan to use your card. Closing unused credit cards will hurt your credit score. That's because of something known as your credit-utilization ratio. Your score will be higher if you are using less of your available credit. If you close a credit card, you will automatically be lowering the amount of credit available to you and increasing your credit-utilization ratio.

4. Order Your Credit Reports

TransUnion, Equifax, and Experian each keep a credit report on you. These reports list your open credit accounts, including credit cards, mortgages, student loans, and auto loans. They also list how much you owe on these accounts and whether you have made any late payments. The reports also list any bankruptcies that are up to seven or 10 years old, and any foreclosures that are up to seven years old.

You can order one report from each of the three credit bureaus at no charge from AnnualCreditReport.com. Do it. Then check over your report for any potential mistakes. If you find errors, notify the offending bureau by email. Correcting mistakes can provide an immediate boost to your credit score. And even if you don't find any errors, it's always good to know exactly what kind of information the bureaus have about you.

5. Make a Household Budget

If you want to avoid overspending again next year, and avoid running up the kind of credit card debt that can hurt your credit score, draft a household budget this year. A budget doesn't have to be complicated to be effective. List your monthly revenues and your monthly expenses. Be honest about what you typically spend on items that can fluctuate each month, such as groceries, dining out, and entertainment.

Once you have these numbers, you can budget how much you want to spend throughout the year on gifts, decorations, and food for all of the big holidays, not just those that roll around each December. Armed with a budget, your odds of not overspending will increase.

Now that the holiday season is over, it's time to change your charging habits. Only charge what you can pay off in full each month. If you want to charge a flat-screen TV, make sure you have enough money saved up to pay it off in full when your next credit card statement comes due.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Build Credit Without Using Credit Cards

Dr Penny Pincher — Mon, 08 Aug 2016 09:30:29 +0000

There are lots of reasons people avoid using credit cards. The interest rates on credit cards can be horrible — in some cases, 20% or higher. And walking around with a large amount of spending power in your pocket can lead to unintended purchases and being saddled with big credit card payments. So, you might be forgiven for thinking that your credit rating would be higher if you just didn't use credit cards. (See also: How to Rebuild Your Credit in 8 Simple Steps)

Important factors in calculating your credit score include on-time payment history and available credit. If you don't use credit cards or make any loan payments, you may not have sufficient credit history to obtain a high credit score. It seems illogical, but if you don't have any debt, you can end up with a poor credit rating due to lack of recent credit history!

But let's say you're still not interested in using credit cards. How do you build your credit without them?

Be Added as an Authorized User

An easy and free way to boost your credit rating is to have a family member add you as an authorized user on one of their cards so you can get the available credit and payment history added to your credit report. Make sure that person has a good credit history and can be counted on to make on-time payments and to keep their balance low. Agree that you will not use the card (even better, let them hold onto your card). For a bigger boost, ask to be added to the card with the highest available credit and lowest debt.

Get a Secured Credit Card

Most consumer credit cards are unsecured. If you don't trust yourself with access to credit, a secured credit card can improve your credit score. To get a secured credit card, you have to put down a deposit, which would then be your available credit. You can't use more money than you've already put in. If you have some cash to make a security deposit, this can be a good way to establish a good credit history by making on-time payments to build your credit score, without the temptation to spend more than you have. The best secured cards even come with valuable cardholder benefits such as extended warranty coverage and automobile rental insurance.

Take Out a Loan

Even if you don't need to borrow money, you can take out a loan, have the funds deposited in your account, and make payments on time to boost your credit rating. You can find lenders at Prosper, Lending Club, or Self Lender. You will pay a small amount of interest fees, but building your credit rating can save you lots of money in the long run.

Make Car Payments on Time

Car loans typically have much lower interest rates, and you can build your credit history with on-time car loan payments. A big problem with car loans is that people tend to buy much more expensive cars than they would if they had to pay cash. One strategy is to buy the same car you were going to buy with cash, but put down a large deposit, and get a car loan for the rest. Use your cash to make the loan payments on time for the life of the loan. You will pay a little more for the car due to interest and fees, but this is a relatively low-cost way to build your credit history.

Make Student Loan Payments on Time

If you have student loans, making your payments on time counts to build your credit history. Set up automatic payments to make sure you never have any late or missed payments reported.

How do you maintain a good credit rating without using credit cards?

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This article is from Dr Penny Pincher of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Reasons Millenials Should Invest in a Home

Dan Rafter — Fri, 05 Aug 2016 09:00:08 +0000

If you believe popular culture, most Millennials don't want to buy homes and would rather rent. But the numbers suggest otherwise. The National Association of Realtors found that in 2015, Millennials made up 35% of all homebuyers, up from 32% in 2014. No other age group represented a bigger percentage of buyers last year.

If you're a Millennial who wants to make the jump from renting to owning, congratulations: There are several reasons why owning a home is a smart financial move for younger buyers.

Owning a Home Is an Investment

No one can guarantee that the home you buy will have increased in value by the time you're ready to sell. But the odds are high that it will.

Just look at the most recent sales statistics released by the National Association of Realtors: The median existing-home price across the nation stood at $247,700 in June. That was up 4.8% from June of 2015, when that number stood at $236,300. This June marked the 52nd consecutive month that the median price rose.

Just remember that price increases, though possible, aren't guaranteed. Plenty of people who bought homes in 2005 and 2006, before the housing market began its crash in 2007, still owe more on their mortgage loans than what their homes are worth. Many of these homes still are worth less today than what they sold for back then.

Interest Rates Are Still Low

If you're like the vast majority of buyers, you'll need a mortgage loan to finance the purchase of a home. Borrowing mortgage money today, though, is affordable thanks to historically low mortgage interest rates.

According to the Freddie Mac Primary Mortgage Market Survey, the average interest rate on a 30-year, fixed-rate mortgage loan stood at 3.45% for the week ending July 21. For a 15-year, fixed-rate loan, that rate stood at 2.75%. These low rates mean that your monthly mortgage payment will be lower than if rates were closer to the 5% range.

You Can Build Equity

Every time you make a monthly mortgage payment, and pay down your home loan's principal balance, you build equity in your home. Say your home is worth $200,000 and you owe $180,000 on your mortgage loan: You have $20,000 worth of equity.

You can borrow against this equity, in the form of home equity loans or home equity lines of credit, to fund major home improvements, pay down credit card debt, or even to help fund a child's college education. When you are renting, your monthly rent check disappears in your landlord's bank account.

Do exercise caution, though, when borrowing against your home's equity. You will have to pay back whatever you borrow, in monthly installments. Don't add too much monthly debt to your expenses or you will feel the financial squeeze. And if you can't afford to make your monthly equity loan payments, you could lose your home to your lender.

You can boost your credit score: Your FICO credit score is a key number. Lenders rely on it to determine if you're a good lending risk. The higher your score, the more likely you are to qualify for loans and credit, and the lower the interest rate attached to these loans.

By paying your monthly mortgage payment on time each month, you'll steadily boost your credit score. Payment history makes up 35% of your FICO score.

Tax Breaks

Owning a home also comes with tax breaks each year. The interest you pay each year on your home is tax-deductible. This break pays off more in the earlier years of owning a home, because the majority of your mortgage payment at this time is interest.

Are you ready to move from renting to buying? What's holding you back?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

A Low APR Secured Credit Card: Excent Secured

Kris Majaski — Fri, 08 Jul 2016 01:35:44 +0000

Consumers with bad or no credit often find it difficult to get approved for a credit card. If you are just starting out or have had credit problems in the past, you may find your only option is a secured credit card. The Excent™ Secured Credit Card offers a solution for those building or rebuilding their credit. (See also: Best Secured Credit Cards)

How This Card Works

Approval is guaranteed as long as your monthly income exceeds expenses by $100. A security deposit of $200 to $5,000 is required. When you make your security deposit, you receive a credit card with a limit in the amount of the deposit. You can increase your credit limit to a maximum of $5,000 by making additional deposits in $50 increments. Your security deposit is held in a savings account with First Choice Bank, which earns interest. As you use your card and manage your account responsibly, your payments are reported to the three major credit bureaus, helping you to establish a good credit rating.

Guaranteed approval. Although you would think that everyone automatically qualifies for secured credit cards, this isn’t always true. There are credit card issuers with stricter requirements than others, even while requiring a security deposit. With the Excent card, however, you are guaranteed approval as long as your income exceeds your monthly expenses by at least $100. (See also: Secured Credit Cards That Don't Require a Credit Check for Approval)

Deposit earns interest. Your security deposit earns interest in a savings account while your credit card is open. You won’t get rich from the interest you earn, but when you close your account, you’ll receive a little more than you started with in the beginning. And, not all secured credit cards allow you to earn interest on your security deposit. (See also: Secured Cards that Pay Interest on Your Deposit)

Low APR. The APR with many other secured credit cards is significantly higher than those on unsecured cards — sometimes nearly 30%. This is especially helpful if you typically carry a balance from month to month. This card has a fixed APR among the lowest offered by any credit card, secured or not. (See also: Best Secured Cards with Low APRs)

Considerations

High annual fee. The annual fee can be considered particularly high especially since there are secured cards with no annual fee at all. However, cards with lower annual fees also have higher interest rates. If you are planning on leaving a balance, the higher annual fee may be worth it. (See also: Best Secured Credit Cards with No Annual Fee)

Additional fees. This card includes a number of extra fees such as the copying charge, additional card fee, and inquiry fee. Further, there is a fee if you request a credit limit increase even though you are already adding your own money to the deposit for the increase. If you use any of these features, these fees will add up quickly.

No rewards or benefits. The Excent card does not include any additional card benefits or rewards. Although these aren’t features that secured cards typically offer, they are options if you prefer to earn at least a little extra from your purchases while rebuilding your credit.

Foreign transaction fee. Secured credit cards also usually carry foreign transaction fees, which can be an additional expense if you need to use your card for foreign purchases. If you travel frequently outside of the U.S. you should choose a secured card with a lower or no foreign transaction fee. (See also: Secured Cards with Low or No Foreign Transaction Fees)

Who This Card Is Best For

This card is best for those who are working on building or repairing their credit rating. If you have been denied by other credit card providers, you may have a better chance of approval as long as your income is $100 more than your monthly expenses. Because of the low APR it’s also ideal for those who typically carry balances from month to month. Although you will pay a slightly higher annual fee, it will be difficult to find many other secured credit cards with APRs as low.

This article is from Kris Majaski of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Moves to Make If Your Loan Gets Denied

Dan Rafter — Tue, 17 May 2016 09:00:04 +0000

You needed an auto loan to finance that new convertible. Or maybe you applied for a mortgage loan to buy your dream home. Whatever type of loan you needed, the answer was the same: A big "no" from your lender.

Lenders reject loan applications for a variety of reasons, but two stand out: Borrowers either have a low credit score, or they're already paying off too much debt each month.

Fortunately, you can take simple steps to strengthen your finances and turn that loan rejection into an approval. Here are five moves to make after your loan gets rejected to qualify for that financing:

1. Order Your Credit Score

Your FICO credit scores are key when you're applying for a loan. You have three of them, one each generated by the national credit bureaus of TransUnion, Experian, and Equifax. These scores tell lenders how well you've managed your credit in the past. If you have a history of paying your bills late, running up credit card debt, and missing payments altogether, your FICO scores will be weak. Lenders consider a FICO score of 740 or higher to be a strong one. But if your score is too low — say, under 640 — you'll struggle to qualify for loans. And when you do qualify for a loan, you'll have to pay a higher interest rate.

Before you re-apply for a loan after a rejection, order at least one of your FICO credit scores. Lenders are also required to provide you with a copy of your score if that’s the reason you were denied the loan.

2. Order Your Credit Reports

You should also order all three of your credit reports, maintained by each of the credit bureaus. These reports list your personal information and detail your history of managing credit. They show how much you owe on credit cards and other loans, and any missed or late payments from the last seven years. They'll also list any negative judgments, such as bankruptcies or foreclosures that are up to seven or 10 years old, respectively. You can order each of your three credit reports once a year for free at AnnualCreditReport.com.

Once you receive your reports, check them for mistakes. A single mistake on a credit report can send your credit score tumbling. If your report lists a missed car payment that you know you made on time, correct the error by contacting the offending credit bureau through email or by phone. Correcting an error can provide a quick boost to your credit score. Make sure, though, that you can provide documentation, such as a credit card statement or bank account record, proving that you actually did pay the "missed" payment on time.

3. Pay All Your Bills on Time

The best way to boost a weak credit score is to start a new history of paying all your bills on time. Your bill-payment history accounts for 35% of your credit score, according to myFICO.com. Paying your bills on time will cause your score to rise. But this takes patience. Depending on how weak your score is, it might take you several months, or even more than a year, to boost your score to a level acceptable to lenders.

4. Reduce Your Monthly Debt

Lenders often reject loans when borrowers' debt-to-income ratios are too high. In general, lenders want your total monthly debts — including the estimated amount you'll be paying each month for your new loan — to equal no more than 43% of your gross monthly income. If your debt-to-income ratio is higher than this, you'll greatly increase the odds of receiving a rejection on your loan application.

The easiest way to improve a debt-to-income ratio that is too high is to pay off as much of your debts as possible. Usually, this means reducing credit card debt. Paying off the amount you owe on your cards will slowly but steadily cause your debt-to-income ratio to fall.

5. Keep Paid-Off Credit Cards Open

Say you pay off a credit card entirely and you no longer plan on using it. You should close that account, right? No. Never close unused credit cards. Cards with zero balances can actually help your credit score.

That's because lenders look at something called your credit-utilization ratio. This ratio looks at how much of your available credit you are using. The lower this ratio, the better. Closing an unused credit card will instantly hurt this ratio.

Say you have four credit cards, each with a credit limit of $4,000 for an available credit of $16,000. Say, too, that you have $5,000 worth of credit card debt. That comes out to a credit-utilization ratio of about 31%, $5,000 divided into $16,000. But say you close one of your four cards. That reduces your available credit to $12,000. Your debt-utilization ratio immediately jumps to about 42%, $5,000 divided into $12,000.

It's okay to keep a paid-off credit card in your wallet. Just make sure that you don't run up another hefty balance on it.

Have you ever had a loan app denied? What did you do after?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Start Building Your Credit History with the Citi Secured Mastercard

Kris Majaski — Thu, 12 May 2016 10:30:07 +0000

Editor's note: This offer is currently unavailable.

If you are just starting out and haven’t yet established enough of a credit history, you may find it difficult getting approved for most traditional credit cards (as well as other loans). In many cases, you’ll need a secured card like the Citi^® Secured Mastercard^®, from our partner Citi, to build a positive credit history, in order to increase your credit score. The world of secured credit cards, however, can be confusing and in many cases, expensive. But, if you’re looking for a secured card to help you start building your credit score, this card could be your ticket to good credit. (See also: Best Secured Credit Cards for Building Credit)

How This Card Works

This card requires a security deposit of at least $200, which is held in a non-interest bearing Collateral Holding Account for 18 months. Once you are approved for the card and you have made your security deposit, you receive a card with a credit limit in the amount of your security deposit. Your account activity is reported to the major credit bureaus and after managing your account responsibly can lead to a better credit rating. (See also: Secured Cards without Annual Fees)

Considerations

No interest on the deposit. Your deposit is held for at least 18 months, but you won’t earn any interest on it. There are other secured credit cards which allow you to earn interest on your security deposit while it is being held. Although it may not end up making you rich, you do end up with a little extra with secured cards that earn interest on your security deposit. (See also: Secured Cards that Pay Interest on the Security Deposit)

High APR. Although it’s typical for a secured credit card to carry a higher than average interest rate, the APR is among the highest. If you carry a balance from month to month rather than pay in full each month, your interest is going to add up and become costly. If you typically carry a balance, it’s best to select a secured credit card with a low APR .

Foreign transaction fee. The 3% foreign transaction fee is only a problem if you plan to use your card for foreign transactions. If you frequently travel outside of the U.S., this fee can become expensive. You can save a significant amount of money with a secured card that charges a lower or no foreign transaction fee. (See also: Secured Cards with No Foreign Transaction Fee)

Who This Card Is Best For

This card is best for those who are in the process of building a positive credit rating, are diligent in paying balances in full each month, and will use the card primarily for domestic purchases. There are limited fees, and you can start out with a deposit as low as $200. Citi is also an established credit card issuer and cardholders will be able to access their customer service and other benefits.

This article is from Kris Majaski of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What You Need to Know About Adding Another User to Your Credit Card

Andrea Cannon — Mon, 18 Apr 2016 10:00:05 +0000

Adding an authorized user to your credit card account can help establish or improve their credit, but how will it affect you? Fortunately, simply adding a new user to your credit card will not negatively affect your credit score. However, there are a number of factors you should consider before you add a new user to any of your credit card accounts.

How It Works

Once you request that an authorized user be added to your credit card account, they will receive a card with their name on it, which has the same buying power as the primary cardholder's credit card. The credit card account will appear on both users' credit reports.

Adding an authorized user to your account is not a decision that should be taken lightly. The authorized user will have access to your credit line, whether the full amount or a set limit (depending on your card). The primary cardholder is the only one responsible for making payments on time every month.

How the Credit Reports Are Affected

Any joint accounts and shared credit cards will appear on all users' credit reports. If anyone on the account makes a bad move, you will all see the negative effects on your credit reports. On the other hand, if the payments are made on time, the balance remains low, and the account remains in good standing, it can help boost everyone’s credit.

They’ll Receive Their Very Own Card

Once you add an authorized user to your credit card, they will receive their own card (in their name) that they can use at will. Remember, they can make purchases at any time, but they are not directly responsible for making payments on the card, so you'll want to be very careful in choosing whom to add as an authorized user. If they rack up debt, it can impact your credit score and credit worthiness.

What if They Have Bad Credit?

If the new authorized user has bad credit, it won't affect your credit score. Their poor credit history will not be reflected on your credit report and will not affect your credit score.

On the other hand, you should be wary of adding anyone to your account that has already established that they can't handle credit. If they rack up large debts or exceed the credit limit, it can affect your credit history and drastically impact your credit score. If they pile on debt that they — and ultimately you — are unable to pay, any late payments will appear on your credit report and can hurt you in the long run.

You Can Control the Card, But Not the User

Once you add a user, you will still maintain control of the account. You can set up alerts for activity and see exactly what purchases were made. You can also remove them from the account later, if needed. However, if you give them their own card in their name, you have no control over how and when they spend the credit line.

If you are concerned about how they will be using the card, but want to help them raise their score, you may consider adding them to the account but never actually giving them the card. They will still receive the benefits, but you won't take on any additional risk, so everyone wins.

Removing an Authorized User

If you later decide to remove the authorized user from the account, you can simply call the credit card company and request it. Typically, the change will be reflected on their credit report approximately 30 days later.

Personal Relationship Effects

Money issues have caused problems in countless relationships. Once you add someone as an authorized user, you are welcoming financial discussions and a link in your credit reports. Keep in mind that if things go sour in the relationship, the new user can still use their card and rack up the balance, which you will solely be responsible for repaying.

Is It a Good Idea?

The authorized user strategy can help establish new credit or rebuild bad credit. So, it may be a good idea to add a child or spouse as an authorized user, particularly if they don't have any credit history of their own.

If your goal is to help increase the authorized user's credit score, it can be beneficial to strategically choose the right account to add them to. Your best bet is to add them to a credit card account that is old, has a low balance, has a positive payment history, and is in good standing. By doing this, you can ensure the most positive effect on their credit history, average age of credit, and utilization rate. This can have a huge effect on their credit score, helping to increase it in no time.

Do you have an experience adding an authorized user to your credit card account? Please share your thoughts in the comments!

This article is from Andrea Cannon of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: