Need to purchase a new car? Looking to lease an apartment? Ready to buy your first home? You may need to learn how to build credit fast.
All of these major personal finance decisions are impacted by your credit score. From the interest rate for an auto loan to the security deposit amount to rent a property to the available credit limit for a new credit card, lenders, landlords, and other institutions largely base their terms on your credit history.
But what happens if you’re preparing to make a significant investment and have no credit history? Luckily, you can learn how to build credit fast by following the steps outlined in this easy-to-navigate guide.
In fact, the tips and tricks we’ve compiled can even help those with bad credit scores get the needle moving in a more positive direction.
What is Credit?
What does it mean to have excellent credit? To put it simply, lenders are more confident in a borrower’s ability to make on-time payments to cover outstanding debts the higher their credit score is. As a result, you will receive more favorable loan terms and options, including lower interest rates or higher lines of credit.
However, you don’t just start out with a good credit score. Just like your bank account balance can reflect how well you manage your personal finances, so can your credit history.
Banks, credit card companies, and other financial institutions conduct hard inquiries to look at your payment history, credit card balances, and other information on your credit report.
When they perform those inquiries, they also get a credit score, calculated by one of the three credit bureaus. Overall, the higher your credit score, the less risk you pose to a potential lender.
Borrow up to $500 and build credit.
How is Credit Calculated?
Quite a few factors go into determining your credit score—a three-digit number ranging from 300 to 850 that signifies your “creditworthiness.”.
The three major credit bureaus in the United States (TransUnion, Equifax, and Experian) have reporting methods that often result in different scores, from FICO to VantageScore.
Even though each credit bureau has its own proprietary method to calculate a credit score, there are some common factors. Here are five key items that directly impact just how low or high that number will be:
- Payment history: Accounting for up to 35% of your credit score, lenders want to see a history of making monthly payments on time.
- Total debt: The total amount you owe, including credit card debt and student loans, accounts for approximately 30% of your credit score. A lower credit utilization ratio will lead to a higher score.
- Length of credit history: Credit scoring models favor someone who has shown the ability to maintain good credit for a long period of time.
- Types of credit accounts: Having a diverse credit mix demonstrates a well-rounded borrowing history.
- New credit accounts: Although it only factors into roughly 10% of your credit score, the number of new accounts you’ve applied for or opened recently will be evaluated.
Missed payments and late payments are some of the fastest ways you can negatively impact your credit score, followed by your credit utilization.
A no-deposit, credit-building card is Possible.
How Can I Build Credit Fast?
If you need to know how to build credit fast, you’ve come to the right place. Below, we’ve broken down nine ways you can make your credit file shine a little brighter.
Ready to boost your score and get your personal finances in better shape? Here’s how:
1. Get a Secured Credit Card
While you will have to dip into your savings account to cover the deposit, opening a secured credit card can help establish and build credit fast.
Keep in mind that you may not be eligible for cashback or other rewards programs with this type of credit card. But if you make on-time payments consistently, you will increase your standing with all three credit reporting agencies and the credit card issuer.
2. Become an Authorized User
If you can’t open a new credit card account on your own, you could turn to a family member or significant other for help.
A cardholder can add you as an authorized user, which will allow you to build credit fast even if you don’t use or possess the credit card.
Essentially, you can reap the benefits of the primary user’s history of on-time payments while reducing the amount of time it takes to generate a FICO score.
3. Set Up Automatic Payments
Want to make sure future credit inquiries don’t have any red flags? Set up automatic payments for all of your loans and credit card accounts. This will remove any potential for late payments, or worse—missed payments.
Worried about making sure there's money in your account? Set calendar reminders on your phone to check your balance before the payment comes out.
4. Use a Co-Signer to Get an Unsecured Credit Card
A friend or family member could also help you build credit fast by serving as a co-signer for a personal loan or credit card. If that person has a good credit score, you may receive a lower interest rate.
The only caveat? A co-signer is 100% responsible if you default on the loan or miss payments on the card.
5. Let Possible Help
At Possible, we offer credit building installment loans. It works by giving you up to $500 that must be paid back in four installments over two months. (You must live in one of the states we serve.)
Most importantly, we’ll report all your on-time payments to the credit bureaus, which should help increase your credit quickly.
We also are pleased to announce our Possible Card, a no interest, no late fee, no deposit credit card made for building credit.
6. Get a Secured Line of Credit
If you have funds in your bank account to use as collateral, you may be able to secure a line of credit that will give you a specific spending limit.
If you establish a consistent payment history, you may become eligible for an unsecured credit card.
7. Apply for a New Credit Card From a Store You Frequent
Retail stores and other shops often offer credit cards that can be beneficial for loyal customers.
While there may be annual fees, you often don’t need a high credit score to get approved. And if you use this credit-building tool responsibly, you can raise your score quickly.
8. Report rental and utility payments
Although not all credit checks will take your normal bills into account, there are some that do. Rent-reporting services like Rental Kharma and LevelCredit can help you build a positive history of making payments on time.
Meanwhile, Experian Boost allows you to have your cell phone and utility bills reflected on their credit report.
9. Secure a credit limit increase
One of the fastest ways to build credit and boost your score is to increase your spending limit. Credit utilization factors heavily into your score, so securing a larger line of credit and not increasing spending is a sound strategy for long-term financial success.
How to Maintain a Healthy Credit Score
Follow the tips and tricks above, and you’ll be in great shape on your credit-building journey. Once your score starts rising, though, you’ll want to do everything possible to prevent any slips.
Here are a few ways to maintain a healthy credit score over the long haul:
- Keep your credit utilization ratio low (ideally under 30%)
- Allow credit card accounts to remain open to build history
- Make monthly payments by the due date(s) or pay your balance in full
- Use credit reports to monitor your FICO score for any mistakes
The Bottom Line
Instead of feeling discouraged about not having an established credit history, view this as an opportunity to open the door to a more secure future.
It’s never too late to learn how to build credit fast, and with ample ways to do so and a number of resources at your disposal, you can quickly put yourself in a better position to secure your dream house or car.
Trust the process, commit to making responsible financial decisions and lean on Possible to help your credit grow.
