Building a decent credit score can be challenging. However, it shouldn’t scare you. There are a number of measures and steps if taken carefully, will see you build credit fast and within a short period of time.
Without credit history today, lenders will be reluctant to offer you personal loans and credit cards. Getting an apartment in big cities might be a hard task as well.
How do you build credit fast when no lender is willing to get you started in the first place?
In this article today, I’ve looked at verified legitimate ways you can use to build credit fast.
Whether you are starting out with no credit history or you want to add a few hundred points to your credit score withing 3 months.
1. First get a secured credit card or starter credit card
Secured credit card
If you want to build credit fast from scratch, the first step is to get a secured credit card.
Unlike the normal credit cards, the secured credit card is backed by a collateral.
Most credit card companies prefer you make an upfront deposit equivalent to your prefered credit limit.
You will be issued with a credit card thereafter and you are free to make purchases and settle payments up to the limit equivalent to your collateral.
You will get your deposit back any time you decide to close your credit card account.
Student credit card
If you are a student with limited savings, you can start your credit building journey while still in college.
A few companies offer student credit cards which are normal credit cards but with low credit limits and favorable rates.
Student cards allow you to build credit fast while still in college. You can upgrade when you are out of college.
Starter credit card
Also, sign up for starter credit cards.
They are designed for people new to credit and therefore don’t qualify for a card rightaway.
Like the student credit cards, starter credit cards have low credit limits and an annual fee.
These cards are not meant to be used forever.
The main purpose here is to help you build credit fast for you to qualify for unsecured cards with better terms.
2. Sign up for a secured loan or credit builder loan
You can take a personal loan to build your credit fast.
An example of this loan is the credit-builder loan.
As the name suggest, credit builder loan’s main purpose is to help you fast-track the process of credit score building.
When you take a credit-builder loan, the money is held by the lender and not release to your personal account.
You will be required to re-pay the loan in equal installments every month until the balance is cleared.
The lender will report your payment activity to the three major credit bureaus for purposes of credit score and credit history building.
After you clear all the balance, the lender will release the funds to your personal account and you can use it the way you want.
If you already have a credit card and want to add 100 points or more fast, you can sign up for a secured or unsecured personal loan with low interest or a credit builder loan.
A personal loan in addition to credit card diversifies your debt and improves your credit mix.
If you repay the loan in full, you might add up to 85 points on your FICO or VantageScore rating.
3. Get credit for all your bills
Generally, utilities bills and rent payments do not factor in your credit report.
Most companies do not report these data to credit companies, robbing you off a few good credit points and history of on-time payments.
However, there are firms trying to correct that.
They record all the bills you are paying then submit to credit bureaus to help you build a good history of timely payments.
A good history of timely payments boost your chances of getting a credit card with lower annual percentage yield, APY.
4. Make payments on time
Payment history is one of the main factors when calculating a credit score. It accounts to 35% of your credit score making it not only important but crucial.
Make sure all your bills, loan balances and credit cards are paid in full before due dates.
If you are low on cash, you can make minimum payments which will reflect as a payment on your report and avoid losing points through unnecessary defaults.
Ensure you pay your utility bills on time as well.
Defaulting utilities for long will result in your debt being sold to debt collecting agencies who will start reporting it to credit bureaus.
Such reports of missed payments in your report will slow down your efforts to build credit fast.
5. Keep a low credit utilization ratio
Credit utilization is the percentage of the credit limit that you have already used.
For example, if you have a credit limit of $5,000 and you make purchases using your credit card totaling to $2,500. You would have used half of your limit which is 50% of it. Therefore, your credit utilization ratio is 50%.
We recommend keeping your credit utilization ratio below 30% in all your credit cards at all time.
A high credit utilization ratio is a signal of financial distress and instability in the eyes of lenders.
If you have already maxed out your credit limit or your utilization ratio too high, your can reduce it by:
(1) increasing your income
Higher income will allow you to pay for card balance fast.
(2) Increasing your credit limit.
You can ask the credit card firm to increase your limit from $5,000 to $10,000+ and your credit utilization will drop to 50%.
A low credit card utilization ratio allows you to build credit fast within a short period of time.
6. Have a decent credit mix
Credit mix refers to the type of accounts that make up your credit report.
The diversity of your credit mix is one of the factors in credit score calculation (FICO).
A good credit mix should includes credit cards, unsecured personal loans, secured personals and any other form of debt financing that reports to credit rating bureaus.
Therefore, a good credit mix adds up to 10% more points to your credit score and allow you to build credit fast within a short period of time.
7. Have few credit inquiries
You should avoid activities that demand hard credit checks.
Unlike soft credit inquiries done when pre-qualifying for a loan, hard credit inquiries knock a few points off your credit score.
When several hard inquiries are done within a short period of time, your credit score will nose-dive; which is not good for your efforts to build credit fast.
You must avoid activities that require hard inquiries on your credit.
Another option is to space them out to at least once every 6 months.
The fewer the hard credit pulls, the better for the growth of your credit score.
8. Keep credit cards account active
Most often, when we get a new card with better offers, we rush to close other cards our posession. We recommend you don’t do that.
You can leave all your credit card accounts open for as long as you can. It will benefit your credit score in the long run.
Closing credit accounts too often will not only increase your credit utilization ratio but also reduce your average account age.
A low credit utilization ratio and high average account age sends stability signal to credit bureaus and help build credit fast.
9. Become an authorized user
If you have a spouse or a family member with an excellent credit score, you can ask to sign as a full authorized user on their account.
As an authorized user, you can decide not to use the card but still benefit from parent account’s payment history.
You can check your credit report after 6 months and see if any activities have been reported.
You must ensure the lender send both yours and the parent account credit reports to the rating bureaus.
As an authorized user, you will build credit fast if the parent user makes payments on time.
If they start defaulting, the same data will be reflected in your report and it might not be good for a starter. Be careful with whom you become authorised user.
Credits scores and reports
Track your credit score and use the insights to make informed decisions on how to build credit fast.
You can get a free credit report from each of the three major credit scoring firms, examine them, identify mistakes and correct them.
10% of the people do find mistakes in their report which when corrected increased credit their score by 100 points; depending on the nature of the error.
Avoid credit repair companies that promise to improve your scores by selling tradelines.
Tradelines are accounts with established credit histories that you can add your name and receive an instant credit score boost.
Credit scoring companies are smart enough to detect such fraud. Once detected, it might not be good for your credit building efforts.