What are credit building tools?
Traditionally, people rely on credit cards to build credit history and
improve their credit scores. Unfortunately, it can be hard to qualify
for a line of credit if you have poor or no credit.
The good news is that new companies have emerged to solve this problem,
offering different credit building tools that don’t rely on credit
cards to build credit over time.
These tools range from special personal loans to rental reporting
services. Read on to learn more about how our recommended credit
building tools work and whether they can help you.
How to build credit with rent payments
Despite the fact that you’ve diligently paid your rent on time every
month, none of that responsible behavior has had an impact on your
credit. While the major credit bureaus will report rent payment history
on credit reports, that activity has never been included when
calculating your FICO credit score (the most popular scoring model).
Until now, that is. Rental Kharma is an example of one of the new
rental reporting services that provides renters with a way to build
credit. For a small setup fee and monthly service fee, renters can
have their payments reported to TransUnion. In turn, they build a
credit history and strong credit score without having to rely on any
type of debt.
Even better, Rental Kharma can backdate past rent payments up to two
years for an additional fee. That means instant credit history without
having to wait.
How to build credit with savings
Another unique financial service that helps people build credit is Self
Lender. Don’t let the name fool you – they’re not a traditional lender.
Instead, this service helps you build up credit and a savings fund at
the same time without going into any debt.
Here’s how it works: Self Lender gives you a $1,000 “loan" – but that
money is held in an FDIC-insured certificate of deposit (CD) account
for 12 months. So this means the funds are put in a savings account
right away instead of directly to you to spend.
Over the next 12 months, you make monthly payments toward this loan.
This payment activity is reported to the major credit bureaus. As long
as you make all your payments on time, you’ll build a positive credit
history.
At the end of the 12-month period, when the loan is paid off, you can
withdraw the funds from your matured CD (plus accrued interest). Not
only do you walk away with better credit, but now you have a solid
rainy day fund, too.
Why should I care about my credit?
Clearly, building good credit takes time and patience, regardless of
how you do it. So why bother putting in the energy to increase this
three-digit number?
Your credit history and score impacts just about every area of your
life. Great credit can help you get approved for financial tools such
as credit cards, car loans, a mortgage – even things like the apartment
you want to rent.
On the other hand, using credit irresponsibly (such as missing payments
or racking up too much debt) can make it tough to get by. That’s why it’s
not only important to establish credit history, but also keep it positive.
And you don’t need to go into debt to build up credit. As you can see
in the table above, there are plenty of other plenty of other options
for improving your score.
Take a look at these resources to learn more about building credit:
