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Career & Finance Fridays

Money & Finances

How to Build Credit Quickly

Your credit score is one of those things that can seriously affect your life, even if it's not a big part of it. Many people didn't grow up with a lot of financial education, and making sense of it as an adult can be confusing and complex. A lot of people avoid credit and debt altogether, although truth be told, this really isn't the best option.

Building credit can be done fast, especially if you have a low score or a light history. Here are some practical steps you can take in order to do just that:

1. Pay your bills on time. The simplest and most straightforward way to consistently build credit is to just hit all your payments. Pay your credit card minimum (or pay it off every month), cover your phone bill, and you should be fine. Over time, this amounts to a solid history of consistent payments that goes a long way. 

2. Take credit limit increases. When you're given the chance to up your limit, always, always take it. Your credit score is often influenced by how much of your credit you use - so the less % of your total credit limit, the better.

3. Pay attention to errors. If you see something show up on your credit history that isn't accurate, fight it. Your credit score can be the determining factor in you getting approved for a car or house loan, among other important things - so making sure that things check out is important. 

Be wise with your money, and stay consistent in these habits, and you'll watch your credit score fly up before your eyes.

Recommended Book

How to Build Credit

Jan 30, 2015
ISBN: 9781507788530

Interesting Fact #1

28 million Americans have no credit history whatsoever.


Interesting Fact #2

There are 21 million Americans whose credit history has either gone stale or is not sufficient enough to have a visible score.


Interesting Fact #3

38% of adults between 18-24 say they never check their credit scores.


Quote of the day

If you don't take good care of your credit, then your credit won't take good care of you.

- Tyler Gregory

Article of the day - How To Build Credit Fast: 7 Simple Strategies

Most people decide to improve their credit score when they’re preparing to apply for credit or if they’ve struggled to qualify for a credit card, loan or lease. In these instances, you want to build your credit as quickly as possible. While there’s no magic fix for poor credit, the solutions can be simple.

Use these seven strategies to quickly build a rock-solid credit score.

1. Pay All Your Bills On Time

On-time payment history is the most important factor when building credit. Your payment history, which is one factor that makes up your FICO score, accounts for 35% of your FICO credit score. This means you should always aim to pay your bills on or before the due date.

Setting up automatic payments is the easiest way to pay bills on time. You’ll connect your bank account to the provider, who will automatically charge your account on or before the due date. Creating automatic payments means you won’t have to worry about missing a payment, as long as you have enough money in your bank account to cover the bill.

If you choose to not use autopay and realize you’ve missed a payment, contact the lender or bill provider and rectify it as soon as possible. Only late payments over 30 days are reported to the credit bureaus. The later the payment, the more it will impact your score.

2. Get a Secured Credit Card

secured credit card is designed to help borrowers build their credit.

When you sign up for a secured card, the provider will require a cash deposit to serve as collateral and act as the credit limit. For example, if you put down $200, you’ll have a $200 credit limit. If you don’t pay your credit card bill, the card company can take the deposit.

You can use a secured card at the same in-store and online retailers where you would use a traditional credit card. However, your credit limit will typically be lower.

With a smaller limit, you should only use a secured card for small purchases well below your credit limit. This is because your credit utilization ratio, which represents how much of your total available credit you use in a given time, is the second most important credit factor. For example,  if your current balance is $100 and your credit limit is $200, then your utilization ratio is 50% ($100/$200).

As a rule of thumb, it’s best to keep your credit utilization ratio below 30%. However, a ratio below 10% will result in an even better score. So if you open a secured credit card, multiply your total limit by 30% and never go above that at a given time. For example, if your limit is $200, don’t use more than $60 at a time ($200 x 30%).

3. Become an Authorized User

An authorized user is someone who is added to an existing credit card account. Authorized users can use the card but will not be responsible for any payments. When you become an authorized user, the card’s history will appear on your credit report. If the main cardholder has made on-time payments, then your credit score may receive a boost.

4. Pay Off Any Existing Debt

To reduce your credit utilization ratio quickly and improve your score, use the debt avalanche or debt snowball method to pay down existing debt:

  • With the debt avalanche method, you focus on paying off your highest-interest debt first, followed by the debt with the next highest interest rate, and so on. However, be sure to make the minimum payments on any other cards in the process to avoid any penalties.
  • The debt snowball method, on the other hand, focuses on paying off your smallest balances first while still meeting the minimum payment requirements for your other cards. This method is meant to help build momentum as you get a sense of achievement from paying off one card after another.

5. Apply for a Credit-builder Loan

credit builder loan is geared toward borrowers with no credit history who don’t want to open a credit card.

To use a credit builder loan, you first decide on the amount and term. Instead of receiving the money upfront, every month you make a payment to the lender, and they report it to the credit bureaus. When the term is completed, you receive back the amount you paid, minus possible fees.

If you made payments on time, you should have improved your payment history and therefore boosted your score.

6. Request a Credit Limit Increase

Paying down your debt is not the only way to decrease your credit utilization ratio. Another strategy is to increase the credit limit on your credit cards while keeping your balance at or below the same amount.

To request a credit limit increase, contact your card provider. It may run a credit check before approving the limit, which can ding your score by up to five points. Remember to not get greedy with a larger credit limit. If you decide to overuse your new limit, you’ll defeat the purpose of this strategy.

7. Consider Experian Boost or UltraFICO

When you have no credit history, adding extra accounts can boost your score. You have two options that could help you: Experian Boost and UltraFICO:

  • Experian Boost evaluates your utility, streaming and other accounts and adds on-time payments from these accounts to your Experian credit report. If a lender or card company uses another credit bureau, they won’t see any of your Experian Boost accounts.
  • UltraFICO is a program from FICO that adds information about your bank account balances, cash flow and bank transactions. However, not every lender uses or accepts the UltraFICO score.

Question of the day - Are you mindful of your credit score?

Money & Finances

Are you mindful of your credit score?