Maintaining a good credit score can increase your opportunities; you can get the best loan deals and low-interest rates to start with. People with low credit scores face difficulties when they need a loan and pay high-interest rates whenever they need to meet a financial expense. A good score will always benefit you whether you plan to pay a mortgage or buy a vehicle. Besides that, many things go into your score, including credit inquiries, payment histories, and credit card balances.
If you have a low or poor credit score, there are a few things that you can do to improve it. A FICO score below 669 is considered a low credit score and can affect your buying power and loan acquiring ability. Fortunately, we have a list of actions you can consider if you want to know how to build credit fast and maintain a good credit score.
How Quickly Can the Credit Score Be Improved?
The time your credit score takes to improve depends on many factors, such as the condition of your debt. Plus, your report will show if you have had a bad payment history. Missed payments deeply impact credit scores, and it can take years of on-time payments to improve them. Besides that, your credit score drops when you open a new credit card or reach your card’s upper limit. In this situation, your score will take a few months to improve.
While you are on the journey to improving your credit score quickly, you must remember that everyone’s pace is different. That being said, some factors might impact your credit score differently than others. Whatever your credit score, we have jotted down some factors that will help you learn how to build credit fast.
Tips to Improve Your Credit Score
The key to improving your credit score is your credit report. There are only a few factors that you can focus on and see the change within a few weeks. These tips will help you access low-interest loans and increase your credit card limits. Below are the tips to boost your credit score to reach your financial goals quickly:
Request Free Credit Reports
According to the Fair Credit Reporting Act (FCRA), you can request a free report annually from each of the three consumer credit bureaus. These major credit bureaus are Experian, Equifax, and TransUnion. You can contact any of these agencies and request a free report, or visit the Annual Credit Report website to get one. This centralized and government-mandated website allows you to obtain a free report in the quickest way. You can contact them by placing a call or through the mail.
Earlier, everyone in the US could get a free report once a year, but from January to December 2022, everyone can get the report weekly. Besides that, you can also get a free report if you get an adverse action notice, a fraud alert in your consumer credit file, a false report due to identity theft, or if you are on public assistance. Plus, if you have no job and looking for one within 60 days, you are entitled to a report for free.
Carefully Examine the Contents of the Credit Report
It is important to go through your credit report and verify each content. Your report includes your personal information and credit history. Creditors and lenders report your information to bureaus, including credit inquiries, payment history, and account balances. You can find all this information on your credit report, which you can see by requesting a free report. For instance, if you open an account with a lender, the platform will report it to the credit bureau.
The majority of the information on this report is related to your credit account. So, whether you are approved for a mortgage, credit card, car loan, or any loan, it will reflect in this report. Thus, it is important to verify all the details on it, which include available credit, debt payment history, information on payment times, number of closed accounts, the due balance of new accounts, and your personal information. Personal information includes your name, address, date of birth, SSN, and jobs.
Correct Mistakes and Resolve Disputes in Credit Report
After reviewing your report thoroughly and verifying the details, your next step is to point out the mistakes. Any big discrepancies in the report indicate an error that needs quick action. If you think there is an error in the information on the report, you must immediately report it to the credit bureau. You can file a dispute so that the issue is resolved immediately. Besides this, you must place a block on your SSN if you see any unrecognized transaction.
To file a dispute, you must first report to the credit reporting agency that has reported inaccurate information. You can file a dispute by mailing it to the company or contacting them via their website. Plus, there are different ways to submit a dispute to the three major credit bureaus. If you spot a mistake and want to fix it, send a letter to the credit bureau and wait for the bureau to respond. Once the bureau has resolved the dispute credit report errors, you can review the investigation results and check your updated report.
Pay Bills Regularly and On Time
Now that you have evaluated your credit report properly, you can learn more methods to build credit fast. When it comes to boosting your credit score quickly, the best thing to do is to pay your bills on time. Missed or late payments can affect your score badly, showing that you are not responsible for making on-time payments. Thus, lenders and creditors consider you an unworthy and irresponsible candidate for debt repayment. To avoid this, make sure you get more financially organized and responsible by making on-time payments.
If you fear you will miss a payment, you must set up an auto payment system to meet your financial commitments in time. Plus, always pay more than the minimum amount and set auto payments for that, too, so you do not miss any due date. The good thing is that most billing platforms provide this feature so that you can benefit from it. Remember that a late or missed payment can drop your score by 100 points; improving it takes time.
Be an Authorized User of a Credit Card
When you become an authorized user of a credit card on your family member or friend’s credit card, you can also include their credit history in your report. This means you will get another source of responsible and on-time payments to improve your credit score. You can do so by requesting your acquaintance to contact their credit card company and make you an authorized user.
To become an authorized credit card user, you will have to provide personally identifiable information to the credit card company so that they process your request. The benefit of providing this information is huge, and you will see a great improvement in your score. Having a new source of payment history can improve your FICO credit score very fast.
Pay Down Any Revolving Credit Balances
Paying any outstanding debts or loans can raise your credit score quickly. Removing your revolving debt keeps your credit utilization rate low and thus improves your score. So, you must pay more than your minimum payment amount every month. The sooner you pay off the debts such as student loans, the quicker you will see a boost in your score. Besides, you can make smaller weekly or bi-weekly credit card payments instead of one monthly payment.
So, if you are concerned about how to build credit fast, making multiple payments can help. Making multiple payments from your account throughout the month helps the bureaus and credit agencies track your spending more easily. This way, your balance remains low throughout the month while you pay a portion of your debt. Plus, if you pay off the whole balance, it can drastically improve your score.
Report Your Rent and Utility Payments to Credit Bureaus
Some agencies offer various services to improve your credit score. For instance, Experian Boost is one service that allows you to boost your score for free. This is helpful when you have a limited credit history; an alternative credit reporting service tracks other financial commitments that are normally not reported to the major credit reporting agencies. Rent and utility bills are financial responsibilities that are not reported to these bureaus.
Apart from that, you can also use services like Experian Boost to add financial commitments like streaming services, phone bills, and utilities to your credit history. This is a handy feature as it allows you to add payments to your credit history in just a few minutes to help boost your score.
Apply for a Secured Credit Card
A secured credit card provides a small line of credit when you deposit a small amount, say around $200, into your secured account. This amount acts as a refundable security deposit, so when you close the account in good standing, you will get this amount back. However, you have to make regular payments so that the credit rating agencies establish a positive payment history. You must note that opening a new credit account or check can cause a sudden and temporary drop in your score, but it will improve within a few months when you start making payments on time.
Secured credit cards work like regular credit cards; the only difference is the cash deposit acts as collateral. Thus, the secured credit card issuer will use the security deposit whenever you default on the payments. This amount is not accessible to you and remains in reserve unless you cancel the card. You can apply for a secured credit card the same way as a regular credit account. Moreover, these secured credit cards are issued by all major credit card issuers, including MasterCard, Visa, and others.
Apply for a Credit-Building or Secured Loan
A credit builder loan is different from regular loans. With regular loans, you get the amount upfront, and then you can pay it back through regular payments. However, a credit builder loan allows you to make fixed payments to the loan provider to get the loan amount at the end of the term. So, when you make the payments, the lender reports these payments to the credit bureaus every month. The payments include interests and installments, and the loan term is normally from 6 to 24 months.
Thus, a credit-builder loan allows you to show to the credit bureaus that you make timely payments and are financially responsible. However, if you miss payments, even a credit-builder loan will not help improve your score. The good thing about this type of loan is that you do not need to have a good credit score to apply for the loan. Besides that, you must make sure you can pay off the amount timely; otherwise, it will cause more damage to your score. Only borrow what you can afford; doing so will help improve your overall credit score.
Keep Your Credit Card Debt Below 20%
Always ensure your credit balance is below your minimum credit account limit. Around 60% of your score depends on timely payments and the credit balance. Thus, try to keep the balance below 20% of the limit. The amount you need to pay compared to your loan limit can greatly impact your score. This is called the credit utilization ratio (CUR), and you must focus on it. For instance, if your monthly spending is near your credit account’s limit, it can cause a drop in your score.
There are many ways through which you can keep your credit utilization low. First, you must calculate your credit utilization; you can do that by dividing the total outstanding balance on all your cards by the total credit limit, then multiplying it by 100. For example, if you have a credit balance of $5,000 and your account limit is $30,000, you will first divide 5,000 by 30,000, which gives you 0.167. Then multiply it by 100 to obtain 16.67%, which means your credit utilization is below 20%.
Once you have calculated the percentage, if it is equal to or over 20%, you can make small moves to keep it below. To lower the CUR, you should pay off the balances weekly or bi-weekly, that is, more frequently throughout the month. Second, ask your provider for a credit card limit increase and avoid closing credit cards.
Stop Moving Debt From One Account to Another
A balance transfer works when you apply for a new card offering a lower APR. Some cards are good for a balance transfer, but others are not. This credit transaction allows you to move your debt from one card to another. The pros of a balance transfer include a 0% introductory APR offer, debt consolidation, and lower credit utilization. However, there is a balance transfer fee, too, which most cards charge. Plus, the new card has an ongoing APR, which carries on after the promotional APR period.
Charging a small amount to different cards is not good for your credit score; thus, you must use one card to make all your purchases. Though moving card debt through different accounts allows you to save on interest payments, it will not have a good impact on your credit score. Having one card with a larger balance is better than having multiple credit cards with zero balance.
When you move debt from one account to another, you have more credit available, which can compel you to spend more and add to your overall debt. Your strategy should be to pay down all of your card debt. So, if you cannot pay all the debt together, start with the lowest amount. You must start paying off with the lowest balance of credit card debt and make sure to finish it within a few months. You will improve your score within a year when you start paying off your debts. Plus, your credit score also improves when your credit accounts mature.
Request a Credit Limit Increase
One good idea is to request a credit limit increase from your card company so that your purchase limit is increased too. This helps improve the credit score as the credit utilization ratio is also improved. One way to improve CUR is to request an increase in credit limit, and the other includes opening a new card. Your available account limit increases when you have another card. However, you must ensure you do not borrow an amount you will not be able to pay off later.
By increasing your credit limit, you lower the CUR but only if your spending habits remain the same. If you increase your expenditure and the credit limit, the CUR will not improve. Besides that, a request for a limit increase also results in a hard credit inquiry, which can decrease your score temporarily. However, you can improve by making payments on time and keeping your CUR low.
You must remember that if your credit score is not good, it will be difficult for you to request an increase in your credit limit. Also, it depends on your card issuer whether they will do a hard credit inquiry or a soft inquiry to increase your credit limit. A hard inquiry lowers your credit score by 10 points and stays on your report for a year or two. A soft inquiry does not affect your score and is fine for your credit score. However, credit card companies do not reveal the type of inquiry they will perform before increasing the credit limit. Thus, it is better to call the issuer and get that information beforehand.
Keep Your Oldest Credit Cards Open
Some people decide to close their old credit cards because they are not using them. However, keeping your oldest credit cards open and using them frequently is a good way to improve your score. So, even if you are not using an old credit card, you must not close it as it can be useful in building credit. Though closing an old card might not severely affect your score, they may decrease the score initially but then improve it gradually if you make regular payments.
Your score goes down when you close a credit card because your credit limit decreases while your CUR increases. When you close a card, your account’s overall available credit limit decreases too. When lenders evaluate your report to offer a loan, they check your credit utilization ratio, and if it is high, it means you are a less likely candidate.
Most people close their old credit cards because of the high-interest rates or annual fees. If you have an old card with a high-interest rate, you can request the credit card account issuer for a lower interest rate. Your card issuer will be willing to fulfill your request if you have a good credit score and have made payments on time. Moreover, you can also ask for a retention offer.
Group Your Hard Credit Inquiries
Whenever you apply for a loan, credit card, or mortgage, you will come across a credit inquiry. This inquiry adds to your report when the loan provider pulls a hard or soft check to evaluate your credit history. The total number of credit inquiries you get during a year affects your FICO score by 10%. The more credit inquiries, the rapid the decrease in your credit score. Plus, the inquiries will stay on your report for around two years. This means that credit inquiries are the most impactful when it comes to your credit score.
Hard inquiries are only possible when you authorize them, but sometimes the lenders ask for it to evaluate your history and offer a loan. If you do not authorize them to do so, you will not be able to obtain a particular loan according to your requirements. Thus, there is no way out, and you have to allow them to perform a hard inquiry. Thus, a solution is to rack up hard inquiries quickly, so they have the least impact on your score.
When you cluster your credit card or mortgage applications into the same period, the bureaus view them as a single inquiry. This means that you must apply for different times of credits within a two-week window for the bureaus to consider them as one inquiry. However, if you applied for a credit card, and six months later you applied for a mortgage, there will be hard inquiries for each of them, and bureaus will consider them multiple inquiries.
Use an Installment Loan to Pay Off Debt
If you are looking for a fast and impactful change in your credit score, you can get an installment loan to pay off the debt on your credit accounts. Installment loans help improve the score by adding timely payments to your credit history, which positively impacts your score. Plus, these loans broaden your credit mix, especially if you have only used credit cards in the past.
Credit cards are revolving credit, and installment loans are different from that. With an installment loan, you can get a loan amount that you can repay over an extended period. However, it would help if you remembered that applying for a loan can decrease your score initially because of inquiry. Still, with timely payments, you will be able to cover that up and improve your score beyond that. Timely payments are the key here; if you do not make payments on time, an installment loan cannot help you increase your score.
Use Credit Monitoring Services
Credit monitoring services allow you to monitor your credit score regularly. Some of these services are free and allow you to track the changes in your report. While some credit monitoring services charge a fee to evaluate your financial activities. These services allow you to access your scores from either of the three major credit bureaus that are updated monthly. These services also help you avoid identity or theft coverage. For instance, if you get a notification that your credit file contains a new credit card account opening that you have no idea about, you can immediately contact the credit card issuer to resolve the issue. You can also get identity theft coverage to prevent such unforeseen circumstances.
Conclusion: Improving The Credit Score Is Difficult?
No one rule fits all on how to build credit fast. However, do not worry if your score is low because there are lots of things you can do to bring it up. The key is to determine what is holding down your credit score and then work on it to improve the overall score. Plus, you have more chances of increasing your score by 100 points when you have a low score.
The director of public education and advocacy for Experian (credit bureau) says that the lower the score, the more likely you can have a 100-point increase in it. This is because there is room for bigger improvements when your score is low. We hope these quick and simple tips will help you build credit quickly to improve your financial health.