It's not just people with bad credit who need to work to improve their credit score. Having no credit at all (insufficient credit experience) will also leave you with a score in the range that makes it difficult to rent an apartment, take out an auto loan, or get a credit card. And as your family grows, a bad credit score can really complicate things.
With time and prudent financial decisions, you can usually turn your credit picture around. It's nice if your family is willing to help you out by co-signing on a credit-building account, too. Below are some of the best things that work when it comes to building steady credit scores.
Make Payments on Time
One of the easiest ways to have an impressive credit record is to make sure that you pay your debts on time. Remember that your payment history will be used to determine if you are credit-worthy. Whenever possible, try to pay beyond the minimum allowed limit every time you pay. In all cases, it is always better to have lower balances.
But how do you prove yourself when no one will let you open a credit-building account in the first place? The sad fact is that secured credit cards are often the best way to establish credit--at least when all else fails. A secured credit card works suspiciously similar to a debit card, but it can actually help you build your credit. Generally, you pay a fee and deposit a few hundred dollars as security against your credit limit. If you use your secured credit card to make a few small purchases, and if (this is really important), you pay your balance in full every single billing cycle, you will see your credit score start to climb.
If You Borrow Money, Make Sure It Counts
An alternative lender is any lender outside of the traditional bank lending system. If you need to use an alternative lender for any reason--any reason at all, including needing diapers to last until payday--look for a loan agency like Oportun that reports back to the nationwide credit bureaus. That is the only way you'll be able to improve your credit when you pay the loan back on time. See, if the people you borrow money from don't report it back, you're paying all that interest for nothing.
Oh, and that's the other thing you need to remember: Never ever borrow money that you can't pay back on time.
Have Someone Else Co-sign
The time to think about getting a cosigner isn’t when you decide your family has grown enough to need to buy a house in the suburbs. For reasons which will soon become clear, you don’t want to have to look for a cosigner for a major loan. Cosigners should only be used for small, credit-building loans.
Here’s why: If you don't have good enough credit yet to secure a loan or open a credit card account, someone else may be able to cosign for you. This would mean that even though you are the primary borrower, paying the loans falls on both of you. The credit of the person you are co-signing the card with is also affected. Before choosing the person to co-sign the card with, think long and hard. If you miss payments or default on the loan, you won't just be bringing yourself down; this could ruin your relationship with the person who cosigns for you. Typically, it is better to only borrow a small enough sum that you can pay back quickly when you have to use a co-signer. Improve your credit score, then release the co-signer of their legal obligations.
Apply for One Card at a Time
One of the best and fastest ways to build your credit record is to ensure that you have fewer loans that are easy to manage. (It’s also easier for parents of small children to pay back fewer loans. Don’t forget that unexpected expenses are a natural part of having children.) One of the ways to ensure this is to have one card at a time. Note that every time you apply for a credit card, there is an inquiry report that shows up on your credit report for two years. If your score is already low, this could make it worse.
Consistency is Key
In normal circumstances, new credit information flows to the credit bureaus from the credit issuers. This is one of those things that do not come with quick fixes. It is important to keep your balances low and pay your bills on time.
If you want to have a family, prioritize fixing your credit as early in adulthood as possible. In fact, you may want to consider waiting to have children until you can fix your credit. Your family’s safety and well-being will depend on your ability to always be able to provide food and shelter. And furthermore, you need to set a good example for your children. After all, if you don’t teach them about money, who will?