Are you planning to make a big-ticket purchase soon? Maybe you want to buy a car or finally purchase your dream home.
Unless you plan to pay cash, you will need to secure a mortgage or auto loan. Perfect credit isn’t necessarily required to get approved, but improving your credit score can help you get a good interest rate.
How to Build Credit Fast
It can take some time to get a better credit score, but you can speed up the process and start seeing results unjust 30 days with these tips.
Build Your Credit File
You need accounts in your name that report to the major credit bureaus – Experian, TransUnion, and Equifax – to build a credit file. Ideally, you want to have a mixture of revolving (i.e., credit cards) and installment accounts (i.e., loans). But when you’re first starting, it can be challenging to get approved for credit accounts.
Consider products that are designed for credit newbies, like secured credit cards and credit-builder loans. You can also ask a relative or friend with excellent credit to add you as an authorized user to a credit card that has a low balance and is used responsibly. Store credit cards are another option as they aren’t as challenging to get approved for.
Pay Bills on Time
It’s essential to make timely payments on your credit accounts as payment history is the most important component of your credit score. A single late payment on a credit card or loan can tank your score and remain on your credit report for seven years. However, the impact diminishes over time. And the good news is even if you miss a payment, it won’t be reported to the credit bureaus until it’s 30 days past due.
Also, it may be worthwhile to set up automatic payments for at least the minimum amount due each month before the due date. Doing so helps you avoid late fees and damage to your credit score from missed payments.
Make Frequent Payments
You can save a bundle in interest by paying off your credit cards each month. Suppose you’re able to pay in full before the statement closing date. In that case, the creditor will report a zero balance to the credit bureaus. This helps your credit utilization and boosts your credit score.
Ask for Higher Credit Limits
Call up your credit card issuer and ask for a higher credit limit. Some credit card companies also allow you to request a credit limit increase online. If approved, your credit score will likely improve as your credit utilization will go down.
However, you don’t want to start swiping away, or you could end up with a higher utilization than you had before and a mountain of debt.
Get a Secured Credit Card
As mentioned earlier, a secured card can help you build your credit score fast. If approved, you will get a credit limit equal to your security deposit. The credit card issuer will report payment activity to the credit bureaus to build your credit, so you want to keep the balance low and pay on time.
Be mindful that these cards sometimes come with added costs. Read the fine print to learn more about the fee schedule and what you can expect to pay for the annual fee and any other expenses. Also, confirm the card issuer reports to the three credit bureaus.
Dispute Credit Report Errors
Review your credit report to ensure it’s free of errors. There’s a possibility inaccurate or untimely information could be dragging your score down, and these items should be disputed promptly.
Limit How Often You Apply for New Accounts
Each time you apply for credit, a hard inquiry is generated. Although each inquiry only drops your credit score by a few points, multiple inquiries in a short period could drag your score down. However, this rule does not apply when applying with several mortgage or auto lenders to explore rates. This practice is referred to as rate shopping.
You also want to consider how new accounts impact your average age of accounts. The length of credit history is 15% of your FICO score, so you want this period to be as long as possible.
Pay Down Revolving Account Balances
The utilization on your revolving accounts, or credit card accounts, is the amount of the credit limit in use. It accounts for 30% of your FICO score. Ideally, you want to keep your credit card balances at or below 30% of the credit limit – a credit utilization ratio of 10% is ideal for having the best chance at an excellent credit score.
Catch Up on Past-Due Accounts
Get current and stay current on any past-due accounts. This prevents negative information (or late payments) from reporting to the credit bureaus, and you can start to restore your credit health.
Get a Credit-Builder Loan or a Secured Loan
You can also apply for a credit-builder loan or secured loan to build your credit score. These products help strengthen your payment history each time you make a payment.
If you get a credit builder loan, the lender will hold the loan amount in a certificate of deposit or other interest-bearing account and release the funds once you pay the loan in full. Secured loans require an initial deposit equal to the loan amount, and you’ll also make monthly payments for the loan term. When the loan is paid in full, the funds held in the account are yours to keep.
Sign Up for Experian Boost
Experian Boost is a free program to add new, positive information to your credit report, which is one way to improve your credit score quickly. This service comes included when you sign up for an Experian account and allows you to choose what positive payment history you want to add to your credit history, like phone, utility, streaming services (Netflix, Disney+, Hulu, HBO), to be considered for your credit report.
How Credit Scores Are Calculated
Credit scores are calculated using data from your credit reports. Computer algorithms, or scoring models, analyze account information to compute a three-digit number ranging between 300 and 850. The scoring models used most often by lenders are FICO and VantageScore®.
How to Get Your FICO® Score for Free
Experian makes it easy to get your FICO® Score for free. It only takes a few minutes to create your account. You’ll get a free copy of your Experian credit report, your FICO Score 8, free credit monitoring, a dark web surveillance report and credit card and loan offers matched for you. Your profile also refreshes every 30 days when you sign in, so you’ll have access to updated credit reports and scores monthly.
FAQs About How to Build Credit
A 700 credit score can help you get approved for a loan or a new credit card with more favorable interest rates. The length of time it takes to get a 700 credit score depends on what’s in your credit profile and how you manage debt. However, you can get there faster by paying your bills on time each month, paying down your credit card balances, and avoiding opening new credit accounts. Also, be sure to dispute errors on your credit report to have them removed, and be careful not to close old credit cards.
It depends, but you can raise your credit score fast by making debt payments on time, getting current on delinquent accounts, reducing balances on your credit cards, and only applying for new accounts as needed.
Credit scores don’t usually drop when you pay off credit cards. However, your score could take a hit if you close the cards after paying in full since your credit utilization will increase. The good news is your score will improve over time if you continue to practice good debt management habits.
A FICO score of 650 is considered fair. You would need to get it to 670 for your credit rating to be considered “good.”
Here’s a look at credit score ratings:
300 to 579 (poor credit score)
580 to 669 (fair credit score)
670 to 739 (good credit score)
740 to 799 (very good credit score)
800 to 850 (exceptional credit score)