How to build credit?
It takes time to build credit, but there are ways to build your credit fast, although certain methods can help you build your credit score faster than others.
Here are some of the best ways on how to build credit;
Know your credit scores
A good credit score can save you thousands of bucks and is the most important thing you should know if you want to know how to build credit.
The reason for this is not rocket science
Building credit requires paying attention to all the little details, and the biggest of these little details is your credit score. If you don’t know your credit score, how can you know how well to build credit?
In other words, your credit score is the most important number in your personal finance.
What is a credit score?
A credit score is a three-digit number ranging from 300 to 850. Credit scores vary based on the model used (FICO or VantageScore) and the credit bureau (Experian, Equifax, or TransUnion) that calculate the scores. The ratings are like academic ratings. You’ve got very poor (300-579), Fair (580-669), Good (670-739), Very good (740-799), Exceptional (800-850).
FICO is the most preferred model for lenders, and it accounts for over ninety percent of US lending decisions. So, it is important to know how FICO calculates your credit scores.
FICO takes into consideration these factors:
Payment history (35%), Amounts owed (30%), Length of credit history (15%), New credit (10%), and Credit mix (10%).
How to check your credit score for free.
Checking your credit score for free isn’t difficult. Most credit card issuers provide free credit score calculations to their cardholders. After all, you’d make a better client if you know how to build credit. It benefits them too.
Your credit score is really important in determining what sort of products and services you can access using a credit facility. Much like how someone with exceptional grades in high school can get into the Ivy League schools, someone with excellent credit scores can get premium credit cards that can be used for a lot of stuff.
>>> Get Credit Monitoring With Experian
Open a credit card account
Credit cards are one of the most common means of credit.
Credit cards can significantly help you build your credit score. You could incur relatively small charges on your credit card and pay almost immediately or later that month. This creates a good credit score as it helps you build a reputation as a worthy credit user.
Pay your bills ASAP
Anytime your credit report is in review, creditors and any other person looking into your credit report would mostly check your reliability as regards payment of bills. You can boost your credit score by paying all bills on time (all bills regardless if they are on credit or not).
Late payments hurt your credit report, although older ones matter less than current ones. If you’re the kind of person who forgets to pay your bills, you could activate automatic payments to help remind you if you got way too much on your plate at the time.
Get a secured credit card account
If you are building a new credit score or you have a negative credit score, you’ll most probably need a secured credit card.
A secured credit card is a type of credit that is supported by cash deposit from the cardholder.
The credit on the card is usually based on the amount in the account. Therefore, the credit is usually the amount in the savings account or a percentage of the amount in the savings account. Handling a secured credit card properly will help you in your quest to acquire a regular credit card faster.
Asides from the deposit feature, a secured credit card functions like any other credit card. Secured credit cards typically have lower limits and more fees than unsecured ones.
Credit builder loans
A credit builder loan is created to help people build credit. Whatever money borrowed is held by the lender until the loan is paid in full. It is a savings program, and the payments are reported to credit bureaus.
Credit limit Increase
After paying whatever debt you might have owed, and your credit is quite okay, the next thing is to consider getting a credit limit increase. This is where the credit utilization ratio comes into play. The credit utilization ratio is a comparison between the total amount of credit available to you with the total amount you use. Therefore, with a higher credit limit and low credit (what you owe), your utilization ratio is low which is good for your credit
Become an authorized user
For one reason or the other, if you are having trouble getting a credit card, a viable option is to become an authorized user on another person’s account with good credit.
This option works quite well with parents of close relatives who are willing to help a young person with little or no credit history by adding the said person to an already existing account or perhaps creating a completely new joint account.
Have a co-signer
This is when you get another person with good credit to open an account together. Doing this means when there is any failure to make a payment, the co-signer is considered responsible.
Always keep credit card accounts open
Except with extreme situations, you should keep your credit card accounts open. Closing an account has very negative effects on your credit utilization ratio and reduces your average account age.
Limit applying for multiple credits account at close intervals
Applications for credit cards or accounts can cause a temporary drop in your credit score if it is done at close intervals. Too many applications can cause severe damage. Many organizations advise you to give a spacing of at least six months if at all there is a need for another credit account.
Practice good credit habits
Building credits take a lot of time and effort and a good history of payments. It will help if you have good credit habits, like making your payments on time, keeping your credit utilization low, etc.