How To Build Credit | BankruptcyHQ
When planning to apply for credit or having trouble qualifying for a credit card, loan, or lease, most individuals seek to build their credit score. In these situations, you’ll want to get your credit up to speed as soon as feasible. While there is no quick repair for bad credit, there are several basic remedies.
Use these seven techniques to earn a strong credit score fast.
1. Make on-time payments on all of your bills
When it comes to establishing credit, on-time payment history is the most crucial criterion. Your payment history, which is one of the factors determining your FICO credit score, accounts for 35% of your FICO credit score. This implies that you should make every effort to pay your payments on or before the due date.
The most convenient approach to pay bills on time is to set up automated payments. You’ll link your bank account to the service provider, who will charge your account automatically on or before the due date. You won’t have to worry about missing a payment if you set up automatic payments and have enough money in your bank account to cover the charge.
If you don’t utilize autopay and find you’ve missed a payment, contact the lender or bill provider as soon as possible to make the necessary changes. The credit bureaus only disclose late payments that are more than 30 days late. The longer you wait to pay, the worse your credit score will be.
2. Obtain a Protected Credit Card
A secured credit card is intended to assist borrowers in improving their credit scores.
When you apply for a secured card, you’ll be asked to put down a cash deposit as collateral and as a credit limit. For example, if you put down $200, your credit limit will be $200. If you don’t pay your credit card bill, your deposit may be taken by the card company.
A protected card may be used at the same in-store and online stores as a standard credit card. Your credit limit, on the other hand, will most likely be smaller.
You should only use a secured card for modest transactions far below your credit limit if you have a lower credit limit. The second most significant credit aspect is your credit usage ratio, which shows how much of your total available credit you utilize in a particular period. If your current debt is $100 and your credit limit is $200, for example, your usage ratio is 50% ($100/$200).
It’s preferable to maintain your credit usage ratio below 30% as a general guideline. A ratio of less than 10%, on the other hand, will result in a higher score. If you get a secured credit card, increase your overall limit by 30% and never go over that amount at any time. If your limit is $200, for example, don’t spend more than $60 at a time ($200 x 30%).
3. Become a Licensed User
An approved user is someone who has been added to a credit card account that already exists. Authorized users may use the card, but they are not accountable for any payments. The card’s history will display on your credit report after you become an authorized user. Your credit score may improve if the primary cardholder has made on-time payments.
4. Pay off whatever debt you may have
Pay off current debt using the debt avalanche or debt snowball approach to lower your credit usage ratio rapidly and enhance your score:
- You concentrate on paying off your highest-interest debt first, then the debt with the next highest interest rate, and so on, using the debt avalanche strategy. You prevent any penalties, be sure to make the minimum payments on any other cards used in the process.
- On the other hand, the debt snowball strategy concentrates on paying off your smaller bills first while still fulfilling your other card’s minimum payment obligations. This strategy is intended to help you gain momentum by giving you a feeling of accomplishment as you pay off one card after another.
5. Make an application for a credit-building loan
A credit builder loan is designed for those who don’t wish to acquire a credit card and don’t have any credit history.
To employ a credit builder loan, you must first determine the amount and length of the loan. Rather than getting the funds immediately, you make a monthly payment to the lender, who then reports it to the credit agencies. When the term is over, you will be refunded the amount you paid, less any costs that may have been charged.
If you paid on time, your payment history should have improved, and your credit score should have increased as a result.
6. Request an increase in your credit limit
The only method to lower your credit usage percentage is to pay off your debt. Another option is to boost your credit card limit while maintaining your balance at or below the same level.
Contact your credit card company to seek a credit limit increase. Before authorizing the amount, it may do a credit check, which may lower your score by up to five points. Keep in mind that a higher credit limit might lead to overspending. You will destroy the aim of this method if you decide to exceed your new restriction.
7. Take into account Experian Boost or UltraFICO
Adding more accounts to your credit history might help you improve your score if you have no credit history. Experian Boost and UltraFICO are two alternatives that might assist you:
- Experian Boost assesses your utility, streaming, and other accounts and records on-time payments to your Experian credit report. None of your Experian Boost accounts will be shown if a lender or credit card firm utilizes a different credit bureau.
- FICO’s UltraFICO program adds information on your bank account balances, cash flow, and bank activities to your credit report. However, the UltraFICO score is not used or accepted by every lender.