You know it’s important to build credit and keep a good credit score.
But what if you don’t have any credit at all? How are you supposed to build a good credit score if you don’t have any credit, to begin with?
Some people suggest taking out a credit card with a small credit limit, using it for everyday purchases, and immediately paying off the balance to build credit.
That’s fine if you can get approved for a card, and feel comfortable using credit this way.
However, maybe you don’t qualify for a credit card, or simply want to explore other options. Here are three new tools that may provide the best ways to build credit for you.
1. Self Lender
What if you could build credit while also putting money into a savings account?
Self Lender is a service that allows you to do just that by offering credit builder loans.
Save your way to better credit
A financial institution lends you a sum of money. That money is held in an FDIC-insured certificate of deposit (CD) account for 12 months.
This means it’s placed into a savings account right away — you don’t get a lump sum of money.
Throughout the next 12 months, you make monthly payments to repay your loan. As you make your payments, Self Lender reports that to credit bureaus. This allows you to build a positive credit history if you make all your payments on time.
At the end of the 12 month period, you’ll have a paid off loan and a CD savings account with the full balance. Plus, interest your balance earned at a rate of 0.10% APY for the year. That’s why this method is one of the best ways to build credit.
Self Lender is free to join, but you pay $12.00 to open the CD. And the loan comes with an interest rate just like any other. Specifically, that’s 12.52% APR on these loans.
While these loans themselves aren’t new, the way Self Lender is making this way of building credit widely available is. They’ve put the process 100 percent online and made it self-serve. In addition, you get free credit monitoring with real-time credit alerts.
“Credit unions are great institutions, but not everyone has easy access to visit a credit union,” explains James Garvey, Self Lender founder and CEO. He also mentions that while not all financial institutions have big barriers to entry, some do put more of a burden on consumers.
Ways to build credit through loans
In order to get a credit builder loan, you may need to make an initial cash deposit of $500.00 or more. The institution will then lend you that same amount because it’s backed by your deposit.
Self Lender offers the same credit builder loan but makes the tool much more accessible than it traditionally has been.
“As a consumer, the burden of the cash deposit is pretty tough,” says Garvey. “This is why we created Self Lender: to make it easy to join a savings plan that builds credit.”
So why are credit builder loans with Self Lender one of the best ways to build credit? For one, this type of loan is a safe, responsible product.
“With a credit builder loan, you get a loan that you can’t immediately spend because it’s locked into a brand new, FDIC-insured bank account in your name,” says Garvey.
“It’s almost like a savings plan that builds credit because as you make monthly payments to pay down the loan, your CD accrues interest,” Garvey explains. “The payments are reported to all three credit bureaus which can help you build credit.”
“Finally, at the end of the term, you’ve paid off the loan, and the CD unlocks,” Garvey adds. “You’ve established credit history while forcing yourself to save. How cool is that?”
Garvey adds that credit reports track two main types of credit: revolving lines of credit, like credit cards, and installment loans, like a mortgage or student loan.
Credit builder loans are considered installment loans. That can help people who already have a credit card and don’t want to try to build their history with another.
Having a mix of these two types helps boost your score, as it shows you can manage various lines of credit.
2. Rental Kharma
Many people believe that you build credit when you’re a renter.
You send in your rent check, on time and in full, every month. That means your credit score is going up, right?
Not necessarily. Landlords and property management companies aren’t required to report tenant payments to credit bureaus. Therefore, it’s not one of the automatically guaranteed ways to build credit.
When you’re renting a home, you can build a great history with your landlord. This is valuable in case you move and need a referral on your new rental application. But it doesn’t do anything for your credit history or score if no one reports your payment history.
Thankfully, there’s a solution for that.
Enter Rental Kharma. It’s a service that provides renters with a way to build credit even if their landlord doesn’t report payment activity to a credit bureau.
For a $25.00 setup fee and a monthly service fee of $7.00, renters can have their payments reported to TransUnion to help them build a credit history — and a good score.
Rental Kharma can also backdate past rent payments up to two years for an additional fee.
Cullen Canazares, CEO of Rental Kharma, founded the service after he sold a home and went back to renting. When he stopped paying a mortgage and lost the credit reporting on the loan, he saw his credit score drop.
Canazares’s experience and the problem he wanted to solve are reflected in the company’s tagline: “Good renters deserve good credit.”
Building credit through renting
While reporting your payment activity and history on various bills isn’t their only service offered, Rental Kharma is one of the best ways to build credit because of a few unique features.
“We can compress time through our Rental Kharma look back,” explains Bill Butler, Rental Kharma’s COO. “This allows us to verify up to two years of past payments the day you enroll, and report up to 24 months of payment history onto your credit report.”
“This can lead to significant credit improvement in only a matter of weeks versus [the 6 or more month wait] with other products,” Butler adds.
Butler says other products for credit building — like credit cards — can only go into the future. To build up a history, you need to use the product for an extended period of time before you’re likely to see your credit score change.
“For consumers who want to achieve a certain economic goal quickly, like buying a home, the ability to backdate past payments is a complete game-changer over having to wait 200 days,” says Butler.
Rental Kharma also prides itself on offering a straightforward signup process.
“If you compare us to other credit building products,you will see we don’t require lengthy contracts, confusing terms, and the general headache of going through a bunch of contracts,” explains Butler. “We’re really focused on making credit building insanely easy and simple.”
3. Peer to peer lending
Peer to peer lending isn’t extremely new. However, it’s only become mainstream in the last few years.
Peer to peer lending, or P2P, allows you to access a digital marketplace where you can take out a loan not from a traditional lender, like a bank or credit union, but from another individual.
Borrowing money isn’t always one of the best ways to build credit. But, it can provide a good option in some situations. If you already planned to make a purchase that you wanted to finance, it’s worth exploring.
Peer to peer loans often come with lower interest rates than credit cards. Thus, it could be a cheaper way to borrow funds.
Just watch out for other fees associated with loans, like origination fees. Those additional costs could make the loan more expensive than a credit card in the long run.
Start building your own credit today
While credit can hurt you financially if you don’t use it responsibly, a strong history and score can help you save money when you need financing.
A great credit history can also help you get approved for various financial products. Even things like the apartment you want to rent.
And you don’t need to dabble with credit cards. There are so many other good ways to build credit without worrying about getting a card or racking up debt.
Tools like Self Lender, Rental Kharma, and even peer to peer loans can help build credit in a way that’s responsible and good for your financial well-being.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|