How To Build Credit Fast

When you have bad credit, everything in life becomes that much harder. Getting an apartment, opening a credit card, or even finding car insurance can all go from a simple errand to a huge hassle.

If you can improve your credit score, doors and opportunities will open. But, can you actually improve your credit score – and fast?

Keep reading to learn how to build your credit fast, how a credit score works, and the best things you can do to fix a poor credit history.

Pay All Your Bills On Time

It might sound simple, but the best thing you can do to improve your credit score is to pay your bills on time. This accounts for 35% of your credit score, the largest single component.

Data shows that making just one late payment can drag your score down by more than 180 points. That kind of drop could result in much higher interest rates or even being denied a loan or credit card.

The number of days that you are late also matters. Late payments are only reported to credit bureaus after 30 days. And the later you are, the worse the ding to your credit. For example, a payment that is 60 days late will be treated more harshly than a 30-day late payment. 

If you forget due dates easily, consider setting a reminder in your phone. But, if you want to guarantee you’ll never miss another payment, set up automatic payments on all loans and credit cards.

An automatic payment means that the amount due will be withdrawn from the associated checking account on or before the due date. Some lenders, especially student loan and personal loan companies, may even provide a small interest rate discount if you set up automatic payments.

Request A Credit Limit Increase

While payment history makes up 35% of your credit score, your credit utilization ratio or percentage comprises 30% of your credit score.

The credit utilization percentage reflects your current credit card balance compared to your total credit limit. There is a credit utilization percentage for each credit card you have, as well as a total credit utilization percentage for all your credit cards. 

It’s fairly simple to calculate your credit utilization percentage. First, choose one credit card and look at its current balance, which you can find online or on the mobile banking app. Then, find the total credit limit. Divide the current balance by the credit limit to get your credit utilization percentage.

If you’re shooting for a perfect credit score, the target credit utilization percentage should be 10% or less. However, an easier rule of thumb is to aim for a 30% or less credit utilization ratio.

There are two ways you can lower your credit utilization percentage: pay off your credit card balance or ask for a credit limit increase. For example, if you have a $3,000 balance on a card with an $8,000 credit limit, then your credit utilization ratio is 37.5%. However, if your credit limit increases to $12,000, you’ll have a credit utilization ratio of just 25%.

Call the credit card provider and ask them for a higher credit limit. If they deny you, make a calendar reminder to ask again in a few months.

Get A Secured Credit Card

Secured credit cards are one of the best options if you don’t qualify for a regular credit card and need to improve your credit score. A secured credit card is different from a regular credit card because the consumer must make a down payment that will serve as collateral. The down payment also serves as the card’s credit limit. 

For example, if you make a $500 down payment on a secured card, then you will have a $500 credit limit. There are a handful of credit card issuers, like Capital One, that grant you a higher credit limit than your deposit amount. However, this is rare. 

Secured credit cards typically have no or low credit score minimum requirements because they’re specifically made for borrowers trying to build or improve their credit score. There are many secured cards that do not charge an annual fee, so you can boost your credit without paying an unnecessary fee.

Secured credit cards may still have high interest rates, so try not to carry a balance if you don’t have to. Also, the biggest thing to remember with the secured card is to keep a low statement balance. When you have a card with a low credit limit, it’s easy to rack up a high credit utilization percentage without realizing it. If you have a $200 credit limit on a secured card, try not to have more than a $20 balance on the card at any point. The easiest way to do this is to pick a small recurring bill, like your Spotify or Hulu subscription, and add it to your secured card. 

Then, set up automatic payments on the card. This will ensure that you will never be late and that your credit utilization percentage will always remain below the ideal threshold.

Become An Authorized User

An authorized user is someone who is listed as a user on a credit card, but is not ultimately responsible for the bill. The card’s payment history will also be reported on the authorized user’s credit report, potentially boosting their score.

You can only become an authorized user if someone adds you to their account. Because authorized users can potentially run up a huge credit card balance, not everyone is comfortable adding someone else as an authorized user. Ask a family member or partner if they may be willing to add you as an authorized user.

Pay Off Any Existing Debt

Contrary to popular opinion, your total debt amount doesn’t affect your credit score as much as you would think. Sometimes, paying off a loan can even drop your credit score.

However, there are ways to improve your score by eliminating or reducing some debt. If you want to pay off your debt specifically to increase your credit score, the best strategy is to start with the credit card with the highest credit utilization percentage. This will result in the fastest credit score increase.

Paying off your debt may still improve your chances of being approved for a loan and qualifying for a low interest rate.

Apply for a Credit-builder Loan

Just like it sounds, a credit-builder loan can help you build your credit without paying high interest fees. Here’s how it works. You take out a credit builder loan, which involves making payments to a loan company. 

The company reports your payments to all three credit bureaus: Experian, Equifax and TransUnion. At the end of the term, the money you paid will be returned to you – minus some fees. It should cost less to take out a credit-builder loan than a traditional loan. That’s because a regular loan will charge high interest rates for consumers with bad credit or no credit.

Most credit builder loans let you choose the term and the monthly payment, so you don’t pay more than you can afford. Some borrowers who prefer not to open secured credit cards can use a credit builder loan instead to build credit history. 

Remove mistakes from your credit report 

One of the easiest things you can do to boost your credit score is to check your credit report at www.AnnualCreditReport.com. According to data from the Federal Trade Commission, about one in five people have a mistake on their credit report that impacts their credit score.

Go through your credit report and notice any red flags, like an account you don’t recognize or a late payment you don’t remember making. You can file a dispute directly with the credit bureau and ask them to provide proof. 

Sometimes it can be an innocent mistake, like an account that belongs to someone with a similar name. However, errors can also be a result of identity theft. It can take several weeks for a dispute to be resolved. However, the key is to stay on top of the process. If the credit bureau doesn’t remove the mistake, you can appeal the disputed item.

Consider Experian Boost or UltraFICO

If you don’t want to open a secured credit card or a credit builder loan, you can use a service like Experian Boost to improve your credit.

When you sign up with Experian Boost, which is free to use, you can link your bank account and decide which bill payments should be reported to the credit bureau. Experian Boost will add those payments to your credit report. 

UltraFICO is a credit-scoring tool that analyzes your bank account information to include your checking and savings account history. However, to use UltraFICO, you must have applied for credit and been denied or approved with a high interest rate. If you’re not currently in the market for a loan, UltraFICO may not be your best choice.

Conclusion

Having a good credit score is just one part of being a responsible consumer. You can have a high debt total and still have an excellent credit score. Try to live below your means, pay your bills on time, and save for the future. If you follow those basic principles, your credit score and net worth will both increase.

Frequently Asked Questions (FAQs)

Find out more

• Fundamentals of Building Credit: Understand the basics with how to build credit.
• Credit Score Monitoring: Consider the best credit score monitoring services for tracking your progress.
• Good Credit Score Essentials: Learn about what is a good credit score and how to achieve it.
• Factors Influencing Credit Score: Discover what affects credit score.
• Soft vs Hard Credit Checks: Understand soft vs hard credit checks.
• Credit Repair Services: Evaluate best credit repair companies.
• Fixing Credit Report Errors: Get informed on how to challenge items on your credit report.
• Credit Score Differences: Compare FICO and VantageScore.