It is not easy to avail a credit card with a poor credit history or no credit at all. Financial institutions conduct a rigorous process of analysing the borrower’s credit records before a decision is made. However, this does not mean people with bad credit can’t get credit cards at all. There are several financial institutions in the market that also cater to people with poor credit or no credit at all.
Credit builder cards for bad credit are the best possible way to build credit from scratch, even if their credit is non-existent. These are a tool offered by financial institutions to those who do not have a credit card but want to build credit, and it has proven to be immensely useful over the years.
Eligibility For Availing A Credit Builder Card
Financial institutions analyse a person’s credit history and score before approving their request for a credit builder card. Some of the aspects that are considered as a part of this approval process are:
- Payment history: Making timely payments is imperative, and failing to do so will reflect negatively when your application for a credit builder card is being considered. However, if you’ve had a good history of timely payments, you stand a high chance of availing one.
- Credit utilisation: When it comes to utilising your credit, neither over utilisaton nor underutilisation reflect well in your records. As a result, it’s always essential that you maintain a balance between the two.
- Length or duration of usage of that credit card: A longer credit utilisation period always reflects well on your credit history, as it points to your credibility.
- The credit mix should account for at least 10%
These are some of the criteria that are considered when you apply for credit. Lacking these criteria makes it hard to obtain credit, leaving a credit builder as the only viable solution.
If you’re wondering how to build credit without credit card, this article is for you. Read on!
Effective Ways of Building Credit Without a Credit Card
1. Cell Phone and Utility Bills
The first step is to ensure that your spending account is linked with the credit-builder account. This ensures that any payments for cell phone bills or utility bills through the account will build their credit simultaneously. While linking the account, you must ensure that these payments are added to your credit account.
Once these accounts are linked, ake sure that you make all payments within their stipulated deadlines so that they reflect positively in your credit records.
2. Authorised User Credit Card
An authorised user credit card one with a person is allowed to have their name linked to another primary holders’ account. This way, as a secondary user, you can make purchases using this card without being held accountable for the bill payments. However, this is where things become tricky because if the primary holder doesn’t pay off the bills on time, it reflects poorly on you.
You must notify the bank/financial institution that the payments are being made through another credit card, as only then will it build their credit.
3. Rent Payment
One of the most crucial criteria required to build a good credit record is by making payments on time. This becomes easy when the rental payments are recorded in your credit file. Being a payment that’s made regularly, making these payments on time can positively impact your credit score.
However, these payments can only be recorded in your credit score if the landlord or the property owner informs the bank about it, as there is no other way of recording these payments. As a result, you must coordinate with your landlord to confirm if they’ve notified the bank, else these payments will be invalid.
4. Borrowing Loans from Bank
Any loans borrowed form a bank have to be repaid in instalments. Regular payments within the stipulated deadlines can positively impact your credit score. However, keep in mind that if your credit score is poor, it can be harder to have a loan sanctioned from a bank, and you might have to opt for a secured loan.
5. Peer-to-Peer Loans
Peer-to-peer loans allow personal borrowing even with a poor credit record. This is a good option if your loan application is rejected at a bank or other financial institutions. However, the interest rates levied on such loans are much higher than those on loans from banks. Do remember, that It is essential to make sure that the credit bureaus are informed of these payments before putting in a request for a personal loan.
6. Student Loans
Obtaining a student loan doesn’t require possessing a credit card in most cases. Additionally, if your loan is taken under your name as a student, it will be recorded in your credit reports. Like any other loan, however, it’s essential that you pay off its instalments on time to ensure a continuous increase in your credit score.
Proper Utilisation of A Credit Builder Card
As mentioned earlier, credit builder cards can be used if you have a poor credit track or have no credit to start with. Hence, it becomes essential that you make proper use of the credit builder cards to improve your score. Doing so can help increase your creditworthiness and make it easier when you need to take a loan in the future. Here’s a summary of the key things to keep in mind:
- Make sure that past mistakes are not repeated by making payments on time without. Make sure to pay your instalments in full, as failing to do so will increase your interest rates.
- Ensure not to over or underutilise your credit, as doing so can reflect poorly on your credit score.
- Refrain from putting yourself in a position in which you’re trapped in debt, as paying it off can often be a nightmare.
These factors mentioned above are crucial in deciding your chances of availing of a credit card, or any other form of credit in the future. Credit builder cards can come in handy during times of need, provided their utilised properly.