In today’s economy, being able to get a loan or even rent an apartment can be challenging if you don’t have a strong credit score or do not have enough knowledge about basic rules in the banking system, such as how does debt consolidation loan work or how to refinance a car loan.
In order to qualify for favorable financing or lease terms, it’s recommended that you build your credit score as soon as possible. Fortunately, there are several ways to improve your financial score and establish a solid financial future.
If you find yourself in need of help with understanding how the world of credit works or want to make sure that you’re on track with building your finances responsibly, continue reading to learn more about how your credit score works, what factors affect your rating, and which actionable steps you should take moving forward.
The Quickest Ways to Increase Your Credit Score
Anyone with a FICO credit score of 670 or above is considered to have a good rating. But what if your score is just shy of perfect? Are you doomed to spend the rest of your life paying double-digit interest rates on car loans, personal loans with cosigner, mortgages, and student loans?
Fortunately, there are plenty of ways to increase your credit score that don’t involve spending months studying obscure academic papers about the icky world of financial scores. In fact, you might be surprised by how much difference even small changes can make in your rating. If you’re wondering how to build your credit fast, here are a few tips for raising your score quickly and easily.
Get a Secured Credit Card
If you have bad or no credit, it can be challenging to qualify for an unsecured credit card. A secured credit card is an alternative option for people with little to no financial history and little money to deposit as a security measure. A secured credit card requires you to deposit money in a secure financial institution, such as a bank or a credit union, as collateral for the account.
The availability of your deposit acts as your line of financing. You can use your secured card responsibly and begin building your score at the same time. How? By using it responsibly and paying it on time every month. Doing so will help build a positive borrowing history and quickly increase your chances of getting unsecured cards for bad credit in the future.
Apply for a Credit-Builder Loan
When you have a low credit score or a limited borrowing history, a builder loan will help you establish a borrowing history. And as long as you repay the loan on time and in full. People with bad rating scores or limited financial histories can use builder loans to improve their scores.
Your ability to manage your finances and repay a loan in full will be demonstrated when you make all the repayments on a builder loan. Ideally, these loans will help you rebuild your score, so you can borrow money at a more affordable rate in the future.
There is generally only a small amount of money available with builder loans. Depending on your provider, it’s possible to borrow anything between £500 and £5,000 over a 12-month period. These types of specialized loans are generally not offered by mainstream banks and lenders, but by online lenders and credit unions.
Get a Co-Signer
To rebuild a strong and healthy borrowing history, you need to begin establishing a track record of responsible borrowing and repayment habits. A co-signer can help you do just that by adding their name to your loan or credit card application as an assurance that you’ll pay the debt back. When banks see that someone else has your back, they trust you more and are more likely to approve you for a loan or card.
Even with a co-signer, however, lenders will check your report and score first before approving you for anything. Co-signers can be your parents, siblings, guardians, or friends. Only one person can act as a co-signer at a time. In addition, they are equally responsible for repaying the full amount of the loan.
Become an Authorized User
Becoming an authorized user of another person’s credit card can help establish your financial history. When authorized user makes on-time payments and pays off balances in full, they rebuild credit, which contributes to the fast growth of their rating.
Using this method always carries a risk. When the primary cardholder is late in paying the bill or runs up a large balance, relying on their credit card account can backfire for the secondary user. The on-time, late, and missed payments will also appear on each other’s reports, so it’s crucial that you work together.
Dispute Credit Report Errors
When you apply for financing or an apartment, vehicle loan, job, or other housing, you may be asked to supply information regarding your borrowing history as proof of your creditworthiness.
The personal information on your report may contain mistakes, which can have a negative impact on your ability to get the loan or lease you want. However, disputing errors in your report is easier than you think.
The first thing you should do if you discover a reporting error is to quickly dispute it with the credit reporting agency (Experian, TransUnion, Equifax).
Documents supporting your claim should be included, along with an explanation of why you believe the record contains errors or is wrong. There is an online dispute process for all three reporting bureaus, which is often the fastest way to resolve a dispute. Postal disputes can also be submitted in writing.
What Factors Impact Your Credit Score?
There are a number of factors that contribute to your score, though the exact criteria vary from scoring model to scoring model.
Credit Mix
This has a 10% impact on your file. Using financial scoring models, agencies determine how well you manage a wide range of financial products by considering the types and number of your accounts.
New Credit
This one also has a 10% impact on your file. Inquiries involving a hard search of your file or too many recent accounts can result in a lower score due to increased risk.
Credit History Length
This one has a 15% impact on your file. Your score is determined by how long you have held accounts. Your previous accounts and the average age of all your accounts are listed. A higher score is generally associated with longer account history.
Payment History
It has a 35% impact on your file. A negative impact on your score can result from even one missed payment, which is the most important factor in credit scoring. If a lender considers you for new borrowing, they want to make sure you will repay your debts on time.
Amounts Owed
This last one on our list has a 30% impact on your file. If the calculated amount you owe to others is between 5% and 30% for each account, creditors will view it negatively.
How Long Does It Take To Build Credit?
It takes effort, dedication, and time to rebuild a positive borrowing reputation. When starting out, a financial rating won’t be calculated until your account has been open and active for three to six months. Using the tips in this article, you can develop a borrowing history and a financial rating faster than you might think if you follow the right strategy.
The more factors you utilize simultaneously, the higher your score will be when lending agencies update their records. Reinventing yourself after a bankruptcy or other financial disaster is not easy, but it’s not impossible either.
Fast recovery from such a setback involves a lot of hard work and dedication, but you can get through it. Your financial rating will not recover overnight, but with time and dedication, you can quickly rebuild a better future for yourself.
How to Boost Credit Score
Building strong credit is one of the most important things you can do in your life. It will make renting an apartment, buying a home, and even getting a cell phone contract much easier. There are many factors that go into your rating, and it’s not something that is set in stone. Your score can go up and down based on different factors.
If you have a fair or poor rating, this can make it harder to get these services and other opportunities. Improving your score is not always easy, but it’s not impossible. With the right strategy and habits, you can quickly rebuild a better financial history. Here are some tips on how you can raise your score fast.
Make Your Payments on Time
Paying your bills on time is one of the most important steps in improving your credit score. Pay down your credit card balances to keep your overall score stable over time.
Providing you don’t miss a payment, paying your card’s bill quickly and on time every month will boost your rating. This includes paying toward any and all outstanding loans. Remind yourself when bills are due by setting up due-date alerts.
Then get into the habit of paying them as soon as you receive a reminder. If possible, paying off your cards several times per month is also effective. By doing this, you will be able to keep track of your spending and avoid unexpected bills.
Keep Balances Low
A low credit utilization ratio (under 30%) shows lenders that you’re a responsible borrower, according to the Consumer Financial Protection Bureau (CFPB). As well as paying off your entire balance and strengthening your financial rating, paying off your entire balance is the best way to keep the balance low.
Your best first move if you owe money and are unable to pay it off is to stop staking out loans or using the easiest unsecured credit cards to qualify for. When you’re still accruing debt, paying it off is much harder.
Avoid situations where you’re charging expenses you can’t afford and only use credit cards fair credit to make purchases you can afford. If you need a short-term loan, plastic is not a wise option because of its high-interest rates.
Keep Old Accounts Open
Don’t close your oldest account unless you’re absolutely sure you need to. In addition to removing your accounts from your overall available borrowing capacity, you also remove the credit limit. Consequently, your credit utilization percentage goes up, and your financial rating suffers immediately as a result.
If you continue to pay your other outstanding debts on time, even though your financial score will initially drop after closing an account, it will bounce back within a few months. Unless you’re paying an annual fee or your account has a high-interest rate, you shouldn’t close your accounts.
Slowly Build Your Credit Card Portfolio
You can borrow money with a credit card to buy products and services and then pay it back later. It’s possible to rebuild a positive financial history with a credit card if you use it responsibly. Lenders are likely to be reluctant to offer you a credit card if you have little to no borrowing history. So, starting slowly will open up more opportunities for you in the future.
You should be able to obtain a loan or mortgage in the future if you have a good credit rating, which proves you can borrow and repay on time. No matter if you use the best credit cards with no balance transfer fee or credit cards for bad credit, finding the right card will help you quickly rebuild a good rating.
Minimize Credit Inquiries
A hard inquiry might be something you noticed once when looking at your file. When any financial lender pulls your report from one of the three main reporting bureaus (TransUnion, Equifax, Experian), this is called a hard inquiry.
Hard inquiries can lower your score, whether you are approved or not. A soft inquiry doesn’t pull your report. The last 12 months of hard inquiries are considered when calculating your rating by FICO, even though hard inquiries remain on your report for two years.
Don’t Open More Than One Credit Card at a Time
How many credit cards should you have? You know the answer if you have ever racked up a lot of debt. Multiple open cards may make debt repayments unsustainable, even though there is no simple answer to how many credit cards you should have. Multiple credit cards can either help or hurt your financial rating, depending on how you manage them.
But this may not be such a good idea if you’re just starting out or trying to rebuild your score. The FICO (Fair, Isaac, and Company) credit score company warns that opening accounts you don’t need can backfire, lowering your score.
The reason for this is that applying for financing involves companies performing a hard search on your file, which is not a wise idea if you want to build your rating quickly.
Request a Credit Limit Increase
A low credit utilization rate is a result of having a low balance and a high borrowing limit. When you regularly spend more than 30% of your loan limit, call your card issuer to request an increase. By increasing your available borrowing capacity, you give yourself more flexibility to make your monthly expenditures while staying below the 30% threshold.
In order to stick to your budget, you must be certain in your ability to stick to your budget; a higher limit makes overspending more likely. If you want to demonstrate you are financially responsible, pay down a portion of your outstanding credit card balance before you enquire. You don’t have to do this, but it helps with your claim.
It is important to know that requesting a higher limit could result in a hard inquiry search. Credit scores are temporarily dinged by hard inquiries.