How to Borrow Money to Build Credit

In what seems like a catch-22, you need to have credit history to get many types of credit, but the only way to build credit history is to use credit. However, a few types of credit are available to people with little or no credit history. If you borrow money through one of these methods and repay it consistently, you will slowly build your credit history and enhance your chances to borrow more money in the future.

Instructions

1

Go to your local bank or credit union with $300 or more in cash. If you already bank there, have at least $300 available in your account.

2

Ask whether the bank or credit union has secured credit cards or secured loans for which it reports the payment history to all three major credit bureaus. Borrowing from a bank that does not report to the credit bureaus will not help your credit score. If this bank does not report, keep asking at other banks until you find one that reports payment history.

3

Apply for a secured credit card or secured loan at the bank you have found. With either of these forms of borrowing, the bank requires you to put money in a special savings account to get a credit line or loan of an equal amount. The bank holds your money as a security deposit that it can use if you don't make payments.

4

Multiply the credit limit on your secured credit card by 0.3 to find out the maximum amount of credit you should use on that card at any given time. For example, if your credit limit is $300, multiply $300 times 0.3 to find that you should never have a balance over $90. Keeping your balance to 30 percent of your limit helps the portion of your credit score that considers the amount you owe.

5

Make at least one charge on your secured credit card each month. It is best to use the card to buy something that you would have gotten anyway and have the cash to pay for.

6

Pay your bill on the secured credit card or loan each month by the due date. This builds payment history on your credit report, which will help increase your score. Plus, if you pay your secured credit card bill in full, you will not owe interest.