Previously we discussed how to build a good credit rating score using some of the more commonly known methods, so this article reveals a few lesser known bit still highly highly effective techniques for building your credit rating to even greater levels.
But before proceeding here is a quick recap of the 3 simple credit building techniques discussed in the previous article:
- Shelving your unused cards but keeping the credit facilities open
- Using your credit cards and making them work hard for you
- Making sure your credit report contains no errors
The first two above require that you use revolving accounts (these are credit facilities that allow you to purchase and pay off) and if you have implemented these techniques correctly your credit rating score will be on the improve with little extra effort required on your part.
But not everybody has these credit lines available to them especially with today's stringent lending policies, or if they do, they feel uncomfortable using them as it could just be a little too tempting to overspend.
However the reality is: you need credit to actually build your credit score (not that this is saying "rush out and get more credit to get your credit score higher!"), So if are looking for a loan to build credit with here are some lesser known but still highly effective tips for building a good credit rating score:
Look at using peer to peer loans
Known also as social lending, peer to peer lending sites link borrowers to private investors. Two sites are Lending Club.com and Prosper.com plus there are quite a few more.
You can apply to these institutions and secure loans on fixed terms for up to 3 years. Individual investors then look at the loan application packages and will "bid" if they are interested in your deal, which is then signed up in due course.
The lending sites then report your credit activities as any other lender would to at least two of the three credit bureaus – Experian, Equifax and TransUnion and if you are showing yourself to be diligent and timely with your payments, this will of course enhance your credit score.
Prosper requires applicants to have a minimum current score of 640 and the Lending Club requires 640 minimum – but worth looking at if you are at this level.
Apply for a secured credit card
If you are unable to get a regular credit card, a secured credit card may be a good option.
You will be required to make a deposit generally around $ 200 – $ 1000 which will give you a credit limit of the same amount. The benefit of using a secured card is twofold, in that you cannot exceed your credit limit which is great for those who are easily tempted and you can use the card often, then repay it by due in order to gain more credit-worthiness through regular timely payments and build a good credit rating score.
However, you will not want to exceed 30% of your limit at any time in order to gain maximum credit building traction and as mentioned above it must be paid off in full, on or before the due date.
Also make sure that the card you apply for reports to all 3 credit bureaus and always check that their setup fees are not over the top.
Apply for a charge card
For those who have a good credit history, but don't like credit cards you might want to consider a charge card such as American Express or Diners Club.
Charge cards require that you pay them off in full every month however they do have a hidden advantage over credit cards and it's this: They do not dent your credit score like credit cards do if you exceed a certain percentage of your credit limit – it's called credit utilization.
As an example let's say you have a credit card with a $ 5000 limit and you go out and purchase $ 3000 worth of goods during that month then pay it off before it's due.
So you have been using 60% of your available credit and even though you pay it off by the due date, in the eyes of the credit score calculator 'FICO' – 60% usage is above what they calculate as "good" and your credit score will suffer loss.
However charge cards are not calculated on this basis as they don't have traditional credit limits and so FICO treats the calculation differently, meaning you can run your account up to higher percentages without your credit score being penalized – a nice advantage if you need the extra credit.
All you have to do is ensure you pay it off in full every month and you will be building credibility and more credit score points.
So there you have 3 lesser known, but still highly highly effective tips to help build a good credit rating score .