How Credit Works

How to Start Building Credit

You’ve made the decision to take control of your credit but you’re not sure how to start building credit. Whether you have no credit history or are simply looking to strengthen your credit, there are a few options anyone can utilize to start building credit. While there are a variety of choices when looking to build credit, the options below typically do not require a hard pull on your credit report. This means there’s no risk of harming your credit further if denied and those with little or no credit are eligible to apply.

1. Self Lender Credit Builder Loan

The Self Lender credit builder account is almost like a savings plan that helps you start building credit history. Imagine that someone gives you a loan, but you’re forced to save it for 12 months; that’s how the credit builder account works.

Self Lender’s credit builder loan deposits the full amount of the loan into a 12 month FDIC-insured CD account under your name. Over the course of the loan term, you’ll make 12 equal payments to pay off the loan, which are reported to all three credit bureaus. At the end of the term, the CD-account unlocks and you receive the full amount of the CD, plus interest earned. While traditional credit builder loans usually require an upfront deposit, Self Lender only requires an initial $12 administration fee to cover the cost of the application (other fees may apply).

Secured Credit Card

Secured credit cards work like normal credit cards, but they require a deposit up front. The card’s credit limit is based on a combination of the deposit amount and your credit history. If there is no credit history, the credit limit will often match the deposit amount. The advantage of a secured credit card is immediate flexible spending. However, the major drawbacks are high interest rates (usually over 20%) and the need for a large deposit.

Secured Loan

Many credit unions and community banks offer secured loans. These loans are “secured” by the borrower with collateral such as a house, car, or savings account. These loans give you a designated amount of money up front and require you to pay back the loan over a set amount of time. These can help you start building credit by creating payment history and lengthening your credit history. The drawback is that there is no flexibility in the loan or repayment, and if you do not have something of value or a savings account, it will be almost impossible to receive a secured loan.

Whatever method you choose, it’s important to start building credit now. Creditors and lenders want to see a history of good credit and repayment, so there’s no benefit to waiting. Once you start building credit, it’s crucial to maintain healthy spending habits and a healthy credit report.

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