Trying to build credit can seem like trying to build the London Bridge over night. It is not an easy task, nor is it one that happens fast. It will take plenty of time to get your credit score either boosted from damage that occurred as a result of a mishap or just started from the ground up. There are a multitude of different loans out there for you to apply for, but the key is to focus on the ones that will boost your credit the most.
Your credit score is comprised of many factors, of which 30% is the credit utilization rate. This is a measure of the amount of credit you have outstanding compared to how much you are provided. For example, if you have a $1,000 credit limit and you used $900 of it, you have a 90% utilization rate, which is not good. Generally, lenders want your utilization rate under 30%; anything over that threshold and your credit score is negatively affected. Installment loans, however, do not affect the utilization rate. This is a great way to take out credit and not negatively affect your credit score. As you make your payments on time, you will boost your score instead.
Guarantor loans allow you to take on a loan with a family member or a friend being reponsible for the loan if you are unable to repay. That person will vouch for you and your ability to repay, so make sure you will live up to their expectations.
A mortgage is another great loan that offers fixed payments and a fixed loan. This regularity of the loan helps to keep your credit intact and there is no credit utilization factor to bring your credit score down. The longer you hold the mortgage and the more often you make your payments on time, the more likely it is that the mortgage will help to boost your credit score. Just make sure that you take a mortgage that you can easily afford and keep up with on a monthly basis. In addition, do not take out a HELOC (Home Equity Line of Credit) as they are reported as a revolving line of credit, just like a credit card.
If you have a lot of outstanding revolving debt, it can be beneficial to your credit score to consolidate it into a personal loan. This helps to regulate your payments, get the balance paid down, and does not give you access to any more money. This will help to bring your credit score back up after being dragged down by excessive revolving debt. Without the ability to continually use a credit account, your credit utilization rate will go down and your credit score will go up. There are some companies that even cater to giving loans to people with bad credit.
The best way to keep your credit score up is to keep stable credit (installment loans, mortgages, and personal loans) on your credit report with on time payments. In addition, you should not use credit cards whenever possible. Pay cash or use your credit cards very sparingly, as the credit bureaus do like to see a healthy mix of revolving and installment debt on your credit report as long as it is used responsibly. Avoid using revolving debt until you have yourself established, however, in order to keep your credit score high.