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I'm 18 with no credit (a collector has been disputed off) I want to get a personal loan of only a couple hundred but I need it to go towards my credit while I'm paying it back. I also want to take out a secured loan. However I want the lowest interest possible. What would be the best type of product to get for this this?

  • Why do you want to do this? – yoozer8 Dec 13 '19 at 14:58
  • I want to build credit, while getting a lump sum. – Stressed4Success Dec 13 '19 at 15:09
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    Is there a particular reason for wanting the lump sum? Make sure it's purpose justifies paying interest (likely at a high rate, if you can get a loan at all). – yoozer8 Dec 13 '19 at 15:12
  • Well the lump sum will be diversified, I would use some for a car, some for different investments, then depending on the amount left I would get some Certificate of deposits. – Stressed4Success Dec 13 '19 at 15:59
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Get a credit card, not a loan.

If you borrow a pile of money, you'll have to pay interest on it, and may be tempted to spend it on unnecessary things.

If you use your credit card to cover your regular daily spending and then always pay it off, you'll pay no interest and establish good credit history.

  • Side benefit is you can get a credit card that gives you cashback or rewards, so it actually makes you money instead of costing you. – Dugan Dec 13 '19 at 15:21
  • @Dugan That may not be possible at first due to OP's lack of credit history (usually cash back cards require at least some history). However, you are absolutely correct. My wife and I make about $50 a month just for spending money on essentials and putting it on our CC (and paying it off completely so no interest). – Nosjack Dec 13 '19 at 15:56
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You're not going to get decent interest on anything, sadly, but fortunately there are options for which the interest rate is nearly immaterial:

Get a low balance credit card.

Many credit card companies will extend you a limited amount of credit (say, $250), for usurious interest rates. Get one. Use it sparingly. Pay it off in full every month. You will never pay a dime of interest on it, so the interest rate they charge doesn't matter.

And most importantly: keep that line of credit open for the remainder of your natural life.

There are lots of factors that go into your credit score, but one of the most important is the age of your credit card accounts. I was fortunate to get a low balance credit card at your age, and I was stupid to close it -- doing so cut the average age of my lines of credit in half and cost me around 200 points on my score.

  • I was going to do a credit card, however I've been told many things. "put your phone bill on auto, on the credit card and pay everything but $5" "paying it off doesnt build credit" "buy everyday items with the card and pay it all off" "use the credit card on a big purchase and pay just over the minimum until its paid in full" I'm just not sure. But a secured loan (to my understanding is a loan to yourself) sounds like a great way to build credit, and when the limit is reached and I recieve the lump some it will help me buy a car this month next year. (I say personal loan because I'm sure auto – Stressed4Success Dec 13 '19 at 15:08
  • @Stressed4Success Some credit tracking sites tell you what's impacting your score. While I won't endorse any of them, some of the factors they've given me are: 1) average age of your accounts (which I went over in my answer), and 2) credit utilization, which is the amount of money loaned to you divided by the original amount. For the personal loan, it'll start at 100% and go down as you pay it off. I.E., it'll initially hurt your score. For the credit card, it'll start at 0% and go up as you charge to it. I.E., it'll help your score until you over-utilize it. – bvoyelr Dec 13 '19 at 15:19
  • Additional factors are the obvious: number of lines of credit, which is a "good thing" until it's not (i.e., you have too much credit), and number of delinquencies/complaints on your profile -- that is, late payments, accounts in collections ,etc. I suspect the ones in my first comments are the "big ones" though, assuming you're not consistently defaulting on loans, that is! – bvoyelr Dec 13 '19 at 15:20
  • @Stressed4Success As others have already said the best way to build credit is to get a credit card, use it for your normal everyday purchases (i.e. don't buy more things just for the sake of building credit), and pay it off in full every month. Think of your credit score as just being a way of banks to determine how much they trust you to pay money back on time-- e.g. they don't care if you carry a balance of $5. But they will care if you have a longer history of making payments, making all your payments on time, and not having so much credit that you could easily bankrupt yourself. – Dugan Dec 13 '19 at 15:35
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    A better way of saying it is this: the habit of paying it in full every month will probably end up being more important to you than squeezing a potential few extra points from your score. It's best to start out that way in any case, and then if you find out that a small % utilization is good, evolve your habits over time. – bvoyelr Dec 13 '19 at 16:17

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