3 Ways Family Can Help Build Your Credit
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Whether you're just starting out in the credit game or looking to rebuild after you've made some mistakes, building your credit is one of the best things you can do for your financial future.
Not only does an excellent credit score make it easier to get approved for loans and credit cards, but it can also make it easier to get a job, a new apartment, and insurance.
Building credit on your own can be difficult, though, so don't go it alone if you don't have to. A trusted family member can give you a hand to speed up the process. Here are three ways that can happen.
1. They can add you as an authorized user
As the primary cardholder on a credit card, your family member can add you as an authorized user. Not only do you get a credit card tied to their account, but you also get the benefit of the account's full history on your credit report.
Depending on how long they've had the account and how good their track record is, you could see an instant improvement in your score.
Make sure you only ask for this if their credit is great, though. Getting an account with some missed payments in the recent past can hurt your score more than help it. Also, keep in mind that if they make mistakes in the future, such as maintain a high balance or miss a payment, it could damage your credit.
2. They can co-sign a credit card application
If you'd rather get a credit card account of your own but can't get approved, consider asking a family member to co-sign. This way, you're the primary cardholder rather than the authorized user, and you can start building your own history.
Keep in mind, though, that not all credit card issuers allow co-signing. Not many major banks allow it, but a local community bank or credit union may.
Before you apply, double-check with the bank or credit union to make sure it's possible.
3. They can co-sign a loan
If you need a loan instead of a credit card, you can improve your chances of getting approved and build credit at the same time by getting a co-signer.
There are a couple of things to keep in mind before asking this of a family member, though. For starters, the loan will show up on your co-signer's credit report. This could prevent them from getting credit in the future because your debt burden is now their debt burden. This can especially be a problem if they're co-signing a mortgage with you.
Second, your co-signer is equally responsible for the loan payments. So, if you stop making payments, the lender could go after them.
As a result, it's important to avoid anything that could hurt your relationship with your co-signer. Make your payments on time every time and keep them apprised of how you're doing with paying off the loan. Also, work to improve your credit so that you can refinance the loan and get them off it.
Other tips to help you build your credit
Getting help from family is a great way to start building your credit, but there are some other important things you can do all on your own.
Make your payments on time every month
Your payment history is the most influential factor in your credit score. So, the best way to establish an excellent credit history is to make your payments on time, every time.
Keep your credit card balances low
How much you owe is another important factor in your score. A big part of that is your credit utilization, which is calculated by dividing your balance by your credit limit. The lower your credit utilization, the better.
Avoid applying for a lot of credit
Every time you apply for credit, it results in a hard inquiry on your credit report. Each hard inquiry can knock a few points off your score temporarily, and it remains on your credit report for two years. Rack up enough of them, and it can signal that you're desperate and, therefore, a higher risk.
Start adding different types of credit over time
Your credit mix is a small factor in your credit score, but it can still make a difference. As you have different borrowing needs over time, apply for different types of credit. For example, having a credit card, auto loan, and mortgage can be more beneficial than just sticking with credit cards.
There's no quick trick to establishing an excellent credit history, and you certainly can't do it overnight. As you avoid opening new ones too quickly, and closing accounts unnecessarily, your average age of accounts will benefit your score.
Building credit can take time, but getting help can make it an easy process. Asking family for help requires a lot of trust, so don't be offended if a family member isn't comfortable, especially if you've had credit problems in the past.
Have a conversation about it and explain why they should trust you. If it works out, do your best to exceed your family member's expectations.
Also, make sure you're not relying too heavily on someone else to help you build your credit. Understand what goes into your credit score and do what you can on your own to accomplish your goal.
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