How to build credit, fast

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Apply for a secured card, a credit loan, or add yourself as an authorized user to start creating a loan.

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Understanding credit scores can seem overwhelming, but their main job is to show lenders how well you have mastered debt management. They start to represent more when something important is at stake, like applying for a loan for an apartment or a car. Fortunately, if you have below average credit or no credit, the steps you need to take to improve your situation aren’t very complicated.

How your credit score is calculated

Your credit score is calculated based on the information in your credit report. Each person has three credit reports – one from each of the major credit bureaus, Experian, Transunion, and Equifax – and each score may vary slightly. However, FICO, the most widely used credit scoring system, uses the same formula to determine a credit score regardless of which credit report is used.

There are five categories that affect your credit score:

  • New credit (10%): These are new credit cards, loans, mortgages or other open lines of credit.
  • Length of credit history (15%): The longer you have had a line of credit, the better.
  • Credit composition (10%): There are two types of credit: revolving credit (credit cards) and installment credit (mortgage, car loan, student loan, etc.). You want a healthy mix of the two.
  • Use of credit (30%): How much debt you have compared to the amount of credit you have. A good rate of use of credit is 30% or less. To calculate yours, divide your total used credit (debt) by your total credit limit. If you have $ 3,000 in credit card debt and have access to $ 10,000 in credit, your utilization rate would be 30%.
  • Payment history (35%): This captures your payment history on time.

How to create credit if you don’t have a credit account

When you begin your credit building journey, it can be difficult to get started. A credit card is the fastest way to build credit, but you need credit to get it. Fortunately, there are a few things you can do.

Apply for a secure credit card

A secure credit card It is usually easier for those who do not have credit to get approved because you are providing cash up front to secure the card. Most secured cards use this security deposit as a credit limit – a $ 500 security deposit would give you a $ 500 credit limit – but there are a few that will offer upper limits to your deposit. Minimum deposit amounts vary by company. For example, Bank of America requires a minimum security deposit of $ 300 for their secured credit card, but A capital letter only requires $ 49- $ 200, depending on your credit score.

You will use your secured credit card just like a traditional credit card. You can shop online, shop for groceries, or pay for gas with it. Each month, depending on your activity, you will make a payment. On-time and late payments are reported to the three major credit bureaus (TransUnion, Equifax, and Experian). Secured credit cards are like unsecured credit cards in that if you don’t pay off the entire balance each month, interest will accrue.

Credit card companies like secured credit cards for borrowers with little or no credit because there is no risk. If the borrower does not make a monthly payment, the funds can be recovered from the deposit. The time it takes for cardholders to switch to an unsecured card varies, so be sure to keep tabs on your credit score.

Create credit with a credit card

It is not impossible to get approval from a store or a traditional credit card that does not require a deposit and has no credit history. Store cards tend to be easier to obtain and can help you start building credit until your score is high enough to qualify for a regular credit card. If you are going with a traditional credit card, you better focus on student credit cards and those intended for those who have no credit. Here are some options that may cross your path:

If you don’t get approved the first time, it can be helpful to wait for the creditor to explain their decision. You will receive a letter in the list of reasons why your request was not approved. From there, you can figure out what to work on or look for a card that has a better chance of getting approved for someone in your credit score range.

Become an authorized user

If a family member, spouse, or friend has good credit, you might consider asking them if you can become an authorized user on their credit card. You will not have to make any charges on the account – although the cardholder can order a card for you if they wish – to benefit from it. As an authorized user, every time the cardholder uses their card or makes a payment on time, it will increase your own credit profile.

Just make sure you choose a cardholder who uses their credit responsibly. If they’re consistently late with payments or running out of cards, that behavior will show up on your credit report as well.

Get a co-signer

If you’re really having trouble getting approved for a credit card or loan, you may want to consider having a creditworthy friend or family member co-sign your application. A co-signer with a good credit rating can help you qualify for financing. Just be sure to use your new credit responsibly – any missed payments will impact your credit score, as well as that of your co-signer.

Apply for a manufacturer’s credit

A credit loan can help anyone with poor or no credit improve their credit rating. But it is not a loan in the traditional sense of the term. Instead of receiving the money up front, the money you request to borrow is held in a separate account. Each month you will make payments for this loan and each month your lender reports your payment history to the credit bureaus. It is only when the loan is repaid that you have access to the funds.

The only requirement for a credit builder loan is a stable income. You don’t need a co-signer or a minimum credit score.

You will pay interest on the loan and it must be repaid within a specified time frame, which is usually 24 months or less. Some credit loans earn interest while the money is in an account, but the amount is never more than the amount you will pay in interest.

Add your bills to your credit report

Invoices such as to rent and utilities can also be added to your credit report through third parties for a monthly fee. There are a few companies that do, like Level credit, Kharma rental, RentTrack and PayYourRent. Each company charges a different amount and offers a slightly different service, so do a little research before deciding which one you want. Just make sure your utility payments are on time or you could end up worsening your credit.

Experian also offers invoice reports through a service called Experience boost and it’s 100% free. The downside is that Experian Boost will only affect your Experian credit score. This will not affect your TransUnion or Equifax scores. However, the jump you might see in your Experian credit score could happen the same day.

How To Build Credit After You Have A Credit History

Once you have access to credit accounts, follow these strategies to improve your credit score even further.

Apply for a new credit card

If you have a credit card that you use responsibly, adding another credit card could further improve your credit score.

When you apply for a new card, you will see your credit score drop by about five points due to the credit check. But, if you are approved, your new available line of credit should increase your usage rate – one of the factors that determines your credit score – and help increase your credit.

We do not recommend that you open too many accounts in a short period of time. This can lower your score as a result of difficult inquiries and could signal lenders that you are in financial difficulty and may not be able to repay your debts in the near future.

Request a credit limit increase

Similar to opening a new credit card, requesting a credit limit on an existing card increase will improve your usage rate, which generally increases your score. You should be able to apply for a raise online, but you can also call your credit card company to apply. It’s best to do this after you’ve demonstrated sound use of credit – on-time payments for at least six months – to increase your chances of being approved for a higher line of credit.

Pay the balances in full each month

Keep your debt low and your available credit high to increase your score. The best way to do this is to pay off your card balance in full each month. To make sure this happens, charge only what you are able to pay on the payment date.

You also want to make sure you’re paying on time to avoid falling victim to late payments and incurring late fees. Signing up for AutoPay is an easy way to make sure you never miss a payment.

Build — or rebuild — your credit fast

When it comes to building credit quickly, the key things to remember are to pay off your debt, make your payments on time, and periodically apply for a line of credit increase. Do these three things and over time your score will reach a point where you don’t have to think about it.

The editorial content on this page is based solely on objective and independent reviews of our editors and is not influenced by advertising or partnerships. It was not supplied or ordered by a third party. However, we may receive compensation when you click on links to products or services offered by our partners.

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