Seven Ways to Build your Credit History and Rely Less on Payday Loans

[Apr 30, 2010.]

 

Even the best payday advance loans are not a permanent solution to a lack of savings and lack of credit, but they are not as bad as some media reports make them appear. The Community Financial Services Association of America (CFSA) points out that payday loans are two-week loans, not annual loans. The typical fee charged by payday lenders is $15 per $100 borrowed, or a simple 15% for a two-week duration.

Seven Tips for Building Your Credit and Avoiding Too Many Payday Loans

1. Get a copy of your credit report to check for errors and see where you stand. Instructions for correcting mistakes come with each report. You can obtain a free credit report at annualcreditreport.com
2. Apply for a small loan at a bank or credit union where you have a checking or savings account
3. Apply for credit at a local retail store such as a department store. Department store credit cards usually do not charge a fee and usually have less strict credit standards. The limit is usually low and the interest rate may be high, but if you charge something and pay it off quickly it can boost your credit score.
4. Make a large down payment on an expensive purchase and negotiate payments for the balance. Lenders are sometimes willing to make an exception for someone who has made a large down payment. Demonstrating that you can make payments on time is crucial to building your credit. For example, if you buy a used car for $5,000, you could make a down payment of $2,000 or more and then finance the rest of the purchase.
5. Ask a friend or relative to co-sign for a loan or credit card with you. A cosigner promises to pay back the money if you don't, so a lender may be more willing to approve you for the loan or credit. The repayment information for both you and the cosigner is generally reported to credit agencies.
6. Pay all your bills on time. The longer your history of on-time payments, the better your credit score.
7. Ask a lender to review your rent and utility payment history as a way to prove your creditworthiness.

Expect building a good credit history to take some time. In the meantime, try to build an emergency savings account and try to consolidate payday loans. A savings account and a good credit history can improve your financial security so that you can rely less on fast payday loans to pay your bills.

 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.