Best Ways to Build Your Credit Quickly

Poor credit can keep you from buying home, getting a loan, and even from getting a job in some states. If you have a low credit rating, you’ll pay higher interest rates for anything you plan to finance provided that you qualify. If you plan to rent an apartment, you’ll have to put more deposit than normal. But, what are the best ways to build credit fast?

Nothing can help you build credit more quickly than a credit card if you learn to use it wisely and responsibly. In order to have a good credit history, you have to use credit responsibly.

The more responsible you are with your credit and the longer credit history of responsible borrowing, the better your credit will be. Once your credit rating is improved, you can enjoy low-interest loans and increased purchasing power.

Many factors are used to calculate the credit rating. In addition to paying bills on time, having no maxed-out lines of credit, you must also monitor your credit report for any errors or discrepancies, and learn to get it removed from your report.

Be aware that major utility companies and phone companies only report to credit agencies when payments are not made. Therefore having your bills in your name will not impact your credit rating.

The following tips will help you to build your credit easily and quickly even if you have no credit or poor credit history.

Stability Is Important

Having to continuously change your addresses, phone numbers, and employers can adversely affect your credit score. If you need to frequently move from one location to another, use a cell phone number instead of home number and use a permanent box number when you apply for a new line of credit.

For a fee most mailbox services offer mail forwarding. Having one phone number and address for 5 years or more reflect stability because if you have to move too frequently, you’re a risk to lenders.

Open a Bank Account

Having a checking and saving account proves your responsibility that you can handle your finances and shows that you have a steady income. Try to at least have one checking or saving account before you actually apply for a loan. If your checks bounce, it will have a negative impact on your account.

Have a Source of Income

You need to show a source of income to prove that you can pay your bills when it is due. Lenders judge what kind of borrower you will be based on your income and employment history.

Employment length is important. If lenders see you are changing jobs every few month, then you’ll look too risky. Try to keep one job for a few years at a time to appear more stable in order to get qualified for a loan.

Check Your Credit Report

You need to check your credit report to see where you stand. Mistakes and even identity theft happen and they could be very costly to your credit rating.

Request a free annual credit report from the three major credit reporting agencies, Equifax, TransUnion, and Experian. Visit www.annualcreditreport.com to request your credit report.

You should review your credit report at least once a year to check any discrepancies and errors. If you notice any mistake, contact credit reporting agencies. They have 30 days to investigate, make corrections and inform you of their actions in writing.

Keep Good Records

Make it a habit to always keep copies of your bank and financial statements. Confirm your statements online. If you have any issues or missed payment, you’ll have the necessary information to dispute any mistakes.

Building Your Credit Record from Scratch

If you have a poor or no credit, try one or all the following methods to start building your credit:

• Get a secured credit card. This is offered through most banks. You will be required to put a cash deposit for up to $500 to receive the card. Before you apply, make sure the card is reported to the major credit bureaus. Once you receive a card, use it just like credit card and pay your payments on time. It usually takes 12 months to build your credit.
• Look for a co-signer among your family, friends, or relatives with already established credit and willing to be your co-signer. This will increase the chance for you to get the credit you need. Both parties will be responsible for making the payments.
• Find someone close to you with established credit and ask to let you be an authorized user on one of their accounts. You will get a credit card that is linked to their account. Once you become an authorized user, the data from that credit card is listed on your credit report. You must not abuse that trust and pay your payment before is due.
• Retail credit cards are easier to get than regular credit cards, but they don’t have much effect as a regular credit card does. You can apply for retail credit card from your favorite department store.

When you apply for any type of credit, the lender pulls your credit report; this process in a short time shows as an inquiry on your credit report which remains for up to two year. Too many inquiries within a short time will lower your credit score.

All of the above methods can help you start building your credit report. However, it may take 12 months or more, depending on your credit status, to be able to get a regular credit card. Issues such as bankruptcies, foreclosure, judgement and charge-offs stay on your credit report for years. The key is to be patient, try to keep building your credit score, and use your credits responsibly.

Apply for Student Card

Student credit cards are designed specifically for students with limited credit history. They are easy to get and are great starter credit card for college students and recent graduates.

Get Your First Credit Card

If you have applied and used secured or retail credit card for a year, it is time to apply for unsecured credit card. The ideal place to apply is the bank you have an account with.

Make sure not to apply for several credit cards within a short period. Wait six months before you apply for a new card because having your credit report pulled too frequently can result in a lowered credit score. Your goal should be to limit credit inquiries by only seeking credit when necessary.

Remember that inquiries stay on your credit report for up to 2 years. Too many inquiries within a short time make you look desperate when you seek new credit. All you need to build credit is 2-3 credit cards used often and paid on time. Also, apply for unsecured credit cards with no annual fees, lowest interest rates, and one that offers cash back percentage on purchases you make.

Apply for a Small Loan

Having variety of accounts, such as small personal loan, auto loan, or mortgage can help to build your credit score much quicker than using only credit cards.

Loans are considered installment loans and should be paid with interest rates over a period of time. Personal loan, Mortgage, and car loan are some of the good examples of an installment loans.

Borrow Only What You Can Pay Back

Never borrow what you cannot pay on time when the bill arrives. Try to stay below 50% of your credit limit and below 30% is wise for improving your credit score. Don’t max out or coming close to your credit limit because it signals to lenders that you might have difficulty repaying what you have borrowed.

Pay On Time

Never miss or defer payments, or you run the risk of lowering your score. You can set up automatic withdrawals from your checking account every month to pay your credit card. Automatic payments let you specify to pay the monthly minimum, to pay a set amount, or to pay the full balance on the card every month. Be sure to avoid an overdraft when you set up automatic payments.

If you are charging what you can afford to pay, you won’t have problem paying your balance in full. However, having credit card balance cannot harm your credit score as long as you pay your balance on time. The only negative part is that you’ll pay interest rate which is usual very high. So pay more than the minimum each month to pay off your balance quickly. Continue to keep your balance below 30% of the credit limit.

Keep Accounts Open

Credit history is very important for your score. Having several lightly user accounts with on-time payment history will help your credit score and build good credit.

You should consider closing only those accounts that charge an annual fee or one with very high interest rate that you never plan to use in the future. Close only one account at a time, waiting 60 days between account closing, so that each month’s credit report registers one account closure at a time.

Use Credit Cards Responsibly

You should check your budget to see how much money coming in, how much you can afford to pay, and how much you would like to save each month.

Borrow only what you can afford to pay. Avoid using cash advances on credit cards due to high interest rates and cash advance fees. Don’t apply for more credit cards that you need. The more credit you have, the harder it will be to keep up with payments.

Use credit card instead of cash for your small purchases. Pay your balance in full or make more than a minimum payment on the card to pay it off quickly and to avoid paying too much on interest rate.

Learn How Credit Scores Are Determined

Five factors are evaluated in determining your score:

• 35% of your credit score is attributed to payment history. Late payments of 30 days or more lowers this score. Bankruptcy, foreclosure, short sale, collection, charge-off, and judgement will have detrimental effect on your payment history. Only 30+ days late will appear on your report.
• 30% of your credit score is based on borrowing behavior and credit balances. Creditors look at how much of your available credit you’re using. Maxing out your credit cards will lower your score. Try to keep your existing balance at 30% and not over 50% of your limit available on your card. If you need to go over this limit, ask your card issuer to raise your credit limit.
• 15% of your score is based on the length of your credit history. The longer you have credit the higher you score will be. So it is important not to close your credit accounts that have been opened for a long time. Having good credit over long period of time will convince lenders your ability to handle credits.
• 10% of your credit score will be related to different types of credit you have. Lenders like to see a mix of different types of credits, such as unsecured credit cards, personal loans, car loans, and mortgage.
• 10% of your credit score is determined by how many credit inquiries you have. Every time you apply for a new credit, the creditors pull and review your credit report. Inquiries will stay on your credit report for up to 2 years. Too many inquiries will lower your score because it indicates you might be borrowing more than you can handle.

Increase Your Credit Score

You should continuously try to increase your credit score using following guidelines:

• Pay your bills on time and try to never miss a payment.
• Stay well below your credit limit and never max out your cards. Try to stay below 50% of your credit limit in order to improve your score.
• Don’t close credit accounts to improve the length of your credit history
• Beware of inquiries and don’t apply for too many credits within a short time.
• Try to have a mix of credits, such as unsecured credit cards, personal loans from banks, mortgage, auto loans, and try to pay all your bills on time.

Your goal should be to move into 700-800 score faster.

By William Robinson – 2019 – Update 2020
Copyright © 2019-2020 Allied Publishing
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For additional articles written by William Robinson, see alliedpublishing.com/building-your-credit. William Robinson is the author of How to Build Better Credit Rating published in 2019.