Building credit history – Loan or Credit Card?

[Alice]

I’ve always been responsible with my financial matters and never used credit, only cash. My mantra is that if I can’t pay it in cash then I don’t need it.

Unfortunately, because of this I have absolutely no credit history, and it starts to cost me money. So I’ve decided to establish credit history.

What’s best for building credit history? Loan or A credit Card?

[Stacy Wall]

Actually, you need both

Both loan and credit card are good to start building credit. In order to build a credit history you need to use credit. The amount doesn’t matter. $10 or $1,000 builds the same credit. You need a stream of timely payments for a minimum of 24 months. With time your score will go up.

Both an installment loan and a credit card will do the job. However, choosing just one will build you a fair score. For a good score you’ll need both, because credit type diversity is actually good for your credit.

The thing is – you won’t qualify for a loan or credit card (unless you find a co-signer or can be added as an authorized user on your parents/wife card/loans)

This leave you with secured loans and credit cards. They are much easier to get (because you deposit a collateral), and build credit just the same.

A few more tips:

• Use the card for a few small purchases.
• Wait for the statement, and then pay it in full to avoid interest
• Avoid carrying a balance on your card. It doesn’t build credit, but very expensive (because of the interest

Good luck.

[Author]

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