How to Build Credit Fast

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how to build credit fast

Making purchases requiring sizable financing can be pretty daunting, whether it’s your first time or your umpteenth. Purchasing a car or a house isn’t the same as swiping a debit card at your favorite fast-food restaurant or signing up for a mobile plan. Financing involves credit checks, down payments, and paperwork that can take hours to sort through and sign. As such, your credit score is one of the essential parts of the equation for making a big purchase. A poor credit score can derail your plan before you even get started. 

A few years ago, my credit score flat-out sucked. It was in the low 500’s, and I couldn’t qualify for a $500 personal loan. I was shocked. I didn’t know it was that bad. That day I looked in the mirror and decided to get serious about getting my credit right. By August 2015, my credit score had risen by 168 points. I was able to do that without paying for help. You can do the same thing as well. Today, I want to share some tips on how to build credit fast.

Having good credit is very important. The better your credit, the lower your interest rate for loans and credit cards. A few years ago, my credit was horrible. Thankfully, I got my act together, and now it’s in the 700’s. If you are young or just starting, you might wonder how to build good credit.

It is not too difficult.

What is a credit score?

According to Investopedia.com, a credit score represents a numeric indication of your creditworthiness which lenders utilize to evaluate your likelihood of repaying your debt. A credit score is a number that is between 300 – 850. The higher your score, the better the opportunity to get a credit card or loan with reasonable interest rates.

Your credit score consists of five categories – payment history, the length of credit history, amounts owed, types of credit used, and new credit.

Since my credit score increased by 168 points in 9 months, I’ve been addicted and intrigued to know where I stand and what to work on. With the insights I extracted from this effort, I’ll share a few straightforward tips you can implement to increase your credit score if you don’t have the best credit score yet.

But before that, remember that nothing can boost your credit score faster than repaying your bills timely or using the card rationally. When advising people on improving their credit score, I point them towards these two fundamental points as they are relatively easy to change and, of course, a pretty good start to the journey ahead.

Let’s discuss different ways how to build credit fast.

How to Build Credit Fast

Open a Bank Account

If you are young or if you are trying to build credit, the first thing that I would do is open a bank account. I would open a checking account and start with $100. You should make sure that your account stays in good standing. Also, try to avoid getting any overdrafts. An overdraft happens when money is withdrawn from your account, and the available balance goes below zero. When you’re building credit, overdrafts don’t look good at all. Your bank will charge you a fee for those as well. Overdraft fees can be anywhere from $15 to $35. It sucks having to pay those fees.

Stop Using Your Credit Cards

If you’re serious about wondering how to improve your credit score in 30 days, you should stop using your credit cards for a while. Your credit utilization is 30 percent of your credit score. Credit utilization is the ratio of your credit card balances to their credit limits. At one point, my credit utilization ratio was at 99%. That wasn’t very good. It is a lot lower now. If you still want to use credit cards, make sure that you pay attention to how much you are using them.

If you do it correctly, using your credit cards is fine. It just depends on the kind of person that you are. If you are disciplined enough to pay the balance each month, by all means, use them. If you struggle a little, consider not using them.

Have Good Employment History

Having good employment history is vital. It shows people that you are reliable. Lenders probably will not give you a reasonable interest rate if they see you jumping from job to job or if you have long bouts of unemployment. They are looking for stability. It also shows that you are responsible. If someone leaves their job every year, the lender may question if they can handle a loan or a credit card.

Monitor and Conflict Any Errors on Your Credit Reports

Pay attention if you need any significant corrections on your credit reports. Monitoring and checking your credits frequently for defects or oversights is advisable. Doing this will help you spot any errors before they do damage.

Confirm that the listed accounts on your reports are accurate. Disagree with errors and get them rectified right away.

Wrong details on credit reports could drag scores down.

Timely Payments of Existing Debts

Did you know the average American has over $5,000 in credit card debt? Depending on how extensive your credit line is, how much you still owe on your cards could negatively impact your score. Experts generally agree that you should owe less than 30% of your available credit every month. If your credit line tops $1,000, you should owe less than $300 when your bill cycles. Essentially, the amount of credit you owe is 30% of your credit score. Your debt-to-credit ratio is one of the things lenders look at when deciding if they want to offer you more credit or not. Credit companies recommend your debt-to-credit ratio be 30% or lower. I was at 44%. But with a little bit of work ahead, it’s been better so far.

Again, missing a payment by more than 30 days is one of the quickest ways to see your credit score take a nosedive. You must make every payment on time to avoid late fees and a negative ding to your credit score. If you have missed any payments, get caught up with them and pay the outstanding fees and interest as soon as possible. You can avoid missing payments by scheduling automatic drafts from your bank.

Negotiate

The next tip to help you raise your credit score is negotiating payments with creditors. We are all humans. Sometimes you need help to pay a bill or remember one. Instead of ignoring it, you should contact your creditors and let them know your situation. You never know what can happen. You can get the late fee waived or negotiate a lower payment. You will only know what may happen once you contact them.

Contact Your Creditors

You’d be surprised at the help your creditors can offer when contacting them. If you have any issues, talk to your credit card issuer. Many have established programs to reduce your monthly payment or interest rates until you are more financially capable. They may even offer a mutual agreement beneficial to both parties. These acts will help you pay your debts and raise your credit scores.

Taking steps to improve your credit score is a good idea whether you plan to make a big purchase in a week, a month, or a year. The sooner you put some of these steps into action, the better prepared you’ll be when you’re ready to sign on the dotted line for that dream car.

Don’t Accumulate Debts, Keep Revolving Credit Balances Low

The credit utilization ratio (CUR) is another critical number in credit score calculations. These rates are based uniquely on revolving credit, basically, your credit cards and lines of credit.

The CUR is calculated by summing up all credit card balances at a particular time and splitting that amount by the total credit limit. For instance, if you routinely charge about $1,000 monthly and the total credit limit across all cards is $5,000, your utilization ratio is 20%.

Lenders usually enjoy seeing low ratios of 30% or below. The lesser the CUR, the more lenders will believe you possibly know about credit management and that you haven’t exhausted your credit cards. A good credit score = a low CUR.

Keep Track of Your Credit Report and Credit Score

You can always request 3 FREE credit report copies from the three major credit bureaus – Transunion, Experian, and Equifax. Each credit bureau offers you your free credit report once a year. You can get your report from more than one bureau, as there could be discrepancies. Carefully vet each report. If you see any inaccuracies, contact the credit company immediately.

Besides requesting your credit report once a year, knowing your credit score consistently beforeķ applying for financing is one of the best steps to be prepared. Consider using a free credit score service to avoid surprises when shopping for cars or houses. Getting your score estimate from a free service doesn’t affect your score like requesting a new line of credit does, so keep track of your score regularly while you focus on improving it.

Another way to keep track of your credit is via Credit Sesame. I’ve been using the website for a while, providing you with a credit score and much more. It differs from Experian, Transunion, and Equifax because it gives recommendations. For example, it shows you could qualify for credit cards with a low APR. It also offers you an overview of your total debt. It allows you to see everything. 

Taking steps to improve your credit score is a good idea whether you plan to make a big purchase in a week, a month, or a year. The sooner you put some of these steps into action, the better prepared you’ll be when you’re ready to sign on the dotted line for that dream car.

 

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Jason Butler is the owner of My Money Chronicles, a website where he discusses personal finance, side hustles, travel, and more. Jason is from Atlanta, Georgia. He graduated from Savannah State University with his BA in Marketing. Jason has been featured in Forbes, Discover, and Investopedia.