You might live by the advice "neither a borrower nor a lender be." Most of the time, this is a wise course of action. There's no doubt that having too much debt is a drag on your finances, but if you want to buy a house or car, you will need to have an established credit history.
How Long Does It Take if You Want to Build a Good Credit Score From Zero?
If you have no credit history, you'll probably need about two years to build a decent credit score, which is a score in the mid- to high-600 range. Start out by getting one or two credit cards. If necessary, open a secured credit card account that reports to all three major credit reporting bureaus: TransUnion, Equifax and Experian. Apply for an installment loan such as a loan backed by a bank account or Certificate of Deposit. Once you've obtained credit, make every payment on time.
Can Buying a Car Help Build Credit?
You see a great set of wheels at a local dealership, and you imagine yourself driving down the freeway, but you also wonder if buying the car can help you build your credit. The good news is that financing a car counts as an installment loan. Making every payment on time has a definite positive impact on your credit score. According to the Fair Isaac Corporation, payment history counts as much as 35 percent in the calculation of your credit score.
Does Paying for Insurance Build Credit?
Paying for your car insurance may keep you legal, but it won't help build your credit score. In most cases, insurance payments are not reported to major credit reporting bureaus, which means that paying for your insurance premiums with cash won't help build your credit. Ironically, many insurance companies check your credit before issuing you a policy. These inquiries count as "hard" credit report pulls that can reduce your credit score.
Does Getting a Credit Card & Not Using It Build Credit?
Getting a credit card and letting it sit idle does nothing to build your credit. If you allow your account to become inactive, your credit card company may respond by cutting your credit limit or canceling your account entirely. This will hurt your debt-to-available-credit ratio, which in turn lowers your credit score. Instead, periodically use your credit card to make small purchases and pay off the balances immediately.
How Long Does it Take to Build a Good Credit History With a Prepaid Card?
Plain and simple, prepaid cards don't help build your credit history because they aren't reported to major credit-reporting bureaus. On the other hand, getting a secured credit card is a good way to start building credit. A secured credit card is backed at least partially by a savings account held by the credit card company. If you go that route, be sure the secured card reports to all three major credit-reporting bureaus. Look for a card that can be converted to a nonsecured card within 12 to 18 months.
- Bills.com: I Have No Credit History What Can I Do?
- Federal Reserve Bank of San Francisco: How to Establish, Use, and Protect Your Credit
- MyFICO: What's In My FICO Score
- Credit Karma: Building Credit With an Auto Loan or Car Payment
- MSN Money: Build Your Credit Without Credit Cards
- CarInsurance.com: Does Paying Car Insurance Every Month Help Build Your Credit?
- Experian: Prepaid Credit Cards Don't Help Build Credit History
- The Wall Street Journal: Credit Card Companies Slash Credit Limits
- MSN Money: Raise Your Credit Score to 740
- Bankrate.com: 10 Questions to Ask Before Getting Secured Credit Cards
- Money Under 30: How to Build Credit for the First Time
- Zillow Blog: I Have No Credit Score – Can I Buy a Home?
- Credit Card Guide: How Long Does It Take to Build a Credit History?
- USA Today: Alternative Credit Scores Could Open the Door for Loans
- PRBC: Alternative Credit Score
- Bankrate.com: The Secrets to Improving Your Credit Score
- MyFICO: What's Not In My Credit Score
- MyFICO: What's In My Credit Report
- Bankrate.com: How Credit Scores Work; How a Score Is Calculated
- Bankrate.com: Should You Cancel an Unused Credit Card?
- Thinkstock Images/Comstock/Getty Images
- Does Paying a Credit Card With Another Credit Affect Your Credit Score?
- Can a High Credit Card Balance Affect a Background Check?
- What Are the Advantages and Disadvantages of Credit Cards & Consumerism?
- How to Transfer a Credit Card Balance From a Joint Account to a Single Account
- Does Charging Credit on Your Debit Card Count Towards Your Credit Score?
- Can You Close a Credit Card Account with an Outstanding Balance?
- Credit Card Dispute and Time Limit
- How to Charge a Mortgage to a Credit Card
- Are Signatures Required on Credit Card Authorizations?
- Can a Credit Card Collector's Court Ruling Be Appealed?