3 Ways to Build Credit

A wise man once said…”You don’t just up and drive NASCAR.”

Credit is much the same way…you don’t start with the lowest rates and the best terms.  You have to prove yourself before someone will give you the rates and terms you deserve.

The 3 best ways I know to build  credit are:

1. Start Small – Start with the least expensive vehicle you can see yourself driving for 18 mos or so.  Remember…this isn’t the car you are going to drive for the rest of your life.  It’s just a car to help build your credit quickly and get the car of your dreams.  Most times you are going to pay a higher rate for you first car.  Paying a higher rate on an inexpensive car for a short term, then finding the car of your dreams makes more sense than paying a higher rate on an expensive car for a long term.
2. Buy Your Credit – Without credit, lenders have no idea how you will perform on your first loan.  Or, If you have already had a chance to build credit and blew it, lenders will be skeptical.  Reduce the risk to the lender and entice them to do business with you by bringing a larger than average initial amount to the table.  What is larger than average?  30% or more.  Not every transaction is the same and not every situation is the same.  There is a human element in almost every lending decision.  Your ability to “sell” yourself to the lender can also impact the ability to secure financing.
3. Borrow your credit – Co-buyers or co-signers are typically designed for parents (sometimes other family members) to help their children get started on the right foot.  The worse the credit the stronger the co-buyer needs to be to secure financing.  Sometimes the co-buyer is used for a lower rate tier as in the case of a good credit borrower with limited credit experience.  Challenged credit borrowers with a co-buyer are the most difficult transactions to finance.  The train of thought is that the good credit co-buyer will cover the loan if the bad credit buyer defaults.  More often than not, when the loan is defaulted by the poor credit buyer, the co-buyer isn’t able to cover the loan and has destroyed a lifetime of hard work. 

There is no “right” or “wrong” answer for which way is the best.  Every situation is different and every buyer is different…that’s the beauty of having options.  The one thing that is certain is…There is not a “Quick and Easy Path” to good credit.