Your credit score is vital in determining whether or not you qualify for loans with better terms. Typically, single moms with good credit history have a higher chance of getting approved for loans quickly than those with poor credit history.
But having a bad credit score doesn’t necessarily rule you out of borrowing money from financial institutions entirely. With some patience and diligence, you can quickly get things back on track and start enjoying loans with low-interest rates and better repayment terms.
If you’re a single mom looking to build credit in 2023, here is a guide to help you get started.
Get a Secured Credit Card
A secured credit card works a lot like its traditional counterpart. The major difference is that, when applying for a secured credit card, you must pay a cash deposit that acts as collateral on your account.
Secured cards are often quick to acquire for first-time borrowers or those with limited credit histories. They can help you build credit because the card issuer reports your timely payment activity to credit bureaus.
With many lenders allowing consumers to complete credit card applications online, applying for a secured card shouldn’t be daunting. All you have to do is submit your personal details and choose a deposit amount that will be your credit line.
Request and Scrutinize Your Credit Report
A credit report shows your credit activity and current credit situation. You can get this report from one of the three credit bureaus – Equifax, Experian, and TransUnion.
Upon getting your report, scrutinize it thoroughly while looking for any issues affecting your credit score. If you find any errors in the statement, dispute them immediately. Common mistakes in a credit report could include duplicated debt, incorrect personal information, and inaccurate credit limits.
A consumer can challenge a credit report with either their lending institution or the credit bureaus. This process involves writing a letter highlighting the errors to the relevant party and providing evidence backing up your claim.
Pay Bills on Time
Your payment history is one of the most significant factors lenders rely on to gauge your credit score. So, ensure you make payments on any existing loans, including credit cards, student loans, and personal loans, on time.
Each late payment not only compromises your creditworthiness but also leaves negative remarks on your credit report for around seven years.
In addition to existing loans, don’t forget to pay your rent and utilities on time. These payments make up the alternative credit history and could be used by some credit bureaus to determine a credit score upon a consumer’s request.
Pay off Existing Debt
The amount of debt you owe against your credit limits is also a vital determinant of your credit score. Typically, lenders view consumers with high credit utilization as high-risk borrowers.
Therefore, if you have any outstanding debts, pay them off before opening new credit accounts. Ideally, you should aim to keep your credit utilization below 30 percent.
An excellent way to handle your debts is by paying off high-interest loans first. That will save you money and allow you to redirect funds to other financial goals faster.
Apply for a Credit-Builder Loan
A credit-builder loan can be a great way to improve credit for single moms with no credit history. The primary purpose of this loan is not to provide funds to the borrower but to help consumers establish a positive payment history.
When applying for a credit-builder loan, you will be required to decide on the amount and the term. However, the lender won’t deposit the funds into your account upfront. Instead, they will put the money in a savings account and keep it locked.
Always be sure to consider your options when looking for a loan provider. A federal credit union Hawaii may have different loan stipulations than a larger, national financial institution. The important thing is that you find a lender that provides an agreement that works for your unique needs.
You will be required to make monthly installment payments on your loan for an agreed period. Each time you make timely payments, the lender reports to the three credit bureaus, boosting your credit score. After repaying the loan successfully, the lender releases the funds to you minus possible fees.
