Are you ready to learn how to build credit fast?
Raising your credit score by even 100 points before applying for a car or home loan can save thousands of dollars in interest and fees. The following free guide explains ten ways to build credit fast, designed to help consumers prepare to use their credit.
For example, let’s say you are applying for a $300,000, 30-year fixed-rate mortgage with an interest rate of 4.5%. However, if your credit score is 620, you may qualify for the loan with a higher interest rate of 5.5%. In this scenario, your monthly payment would be approximately $1,703, and the total interest you would pay over the life of the loan would be $299,223.
If you improve your credit score to 740 or higher, you may qualify for the same loan with an interest rate of 3.5%. In this case, your monthly payment would be approximately $1,347, and the total interest you would pay over the life of the loan would be $207,152. This represents a savings of over $90,000 in interest alone.
Additionally, having a higher credit score helps you avoid certain fees, such as a higher down payment or private mortgage insurance (PMI), which can add up to significant savings over time.
Overall, improving your credit score before applying for a home loan can save you a substantial amount of money in interest and fees over the life of your loan. The following guide will give you ten tips to help you quickly improve your credit score, and we’ll even point you in the right direction as to where the best places are to apply for a personal loan.
TIP #1 – Increase Credit Limits
Raise your credit limits while keeping your balances low. When you raise your credit limit, you lower your “credit utilization ratio.” In other words, the more available credit you have, the higher your credit score will be.
Keeping your balances low gives you more available credit and lowers your credit utilization ratio.
Don’t just start opening new credit cards, thinking it will give you more available credit and lower your overall credit utilization ratio. When you open a new credit card, your credit score can temporarily decrease until you get some positive history attached.
After using and paying a credit card on time every month for nine months straight — now is an ideal time to request that your credit limit gets increased. Most of the time, at this point, the credit card company will approve your request.
Your credit score will rise once your credit limit gets raised within ninety days or less. If you have a membership at one of the credit monitoring sites, you will notice every time your credit limit gets increased on any of your credit cards, within about 45-90 days after that, you will get an alert showing your credit score just went up.
Don’t request a credit limit increase too often, though, because each time, you will get an inquiry on your credit report, and credit inquiries lower your credit score if it’s a “hard pull.” The good news is — a credit inquiry will only damage your credit score for up to one year. (credit inquiries stay on your credit for two years but only inflict damage for one year)
Continue increasing your credit limits whenever you can.
If you have maxed out credit cards and only pay minimum payments on these accounts, your credit score will remain handicapped. High balances are like a weight dragging your credit score down.
TIP #2 – Pay Down Balances to Under 35% of Credit Limits
Your credit score will decrease if you maintain credit card balances above 35-50% of your credit limits.
High credit card balances that, on average, remain above 35-50% of their attached credit limits can –
- 1.) Negatively affect your credit utilization and debt-to-income ratios, resulting in lower credit scores
- 2.) Cost you extra money in interest, and
- 3.) Increase your overall expenses
TIP #3 – Pay Bills on Time
You can establish a good payment history after remaining current on your credit cards for only 3-6 consecutive months. Be on time.
Go online and set up automatic bill-pay for your credit card payments so the balances are paid “in full” at the end of each month. If you need help with this, call your credit card company, and they will walk you through setting it up.
TIP #4 – Remove Collection Marks
Collection marks can lower your credit score.
If you see a collection mark on your credit report that is yours, you can call the collection agency and pay it off. However, ensure that if you pay or settle it, the collection agency agrees to remove it from your credit report and not just report it as “paid.”
If it’s an old debt collection account approaching the statute of limitations, you’d be better off letting it expire the statute of limitations and fall off on its own. After it falls off your credit score will go up quickly. You can then apply for your loan and get a much better deal with lower interest rates.
However, there is a chance the collection agency pursues legal action to collect on the debt and attempts to sue you over the debt right before that statute of limitations expires. There is a risk in this strategy.
Often, a person will try to do the right thing and pay off a third-party debt collection account. But, ironically, their credit score then drops even lower because recent collection activity is detected. The longer an old collection account sits with no activity on it, the less of a negative effect it will have on your credit score.
How to Dispute Something on Your Credit to Get it Removed
If you have a collection account on your credit report that is illustrating inaccurate information, dispute it.
Here are the steps to follow to dispute something on your credit report–
- Identify the inaccurate mark: Review your credit report and identify the mark that is inaccurate.
- Gather evidence: Gather any evidence that supports your claim that the mark is inaccurate. This may include bank statements, receipts, or other documents.
- Contact the credit bureau: Contact the credit bureau that is reporting the inaccurate mark. You can do this online, by phone, or by mail. Provide them with the evidence you have gathered and explain why you believe the mark is inaccurate.
- Wait for a response: The credit bureau will investigate your dispute and may contact the company that reported the mark to verify its accuracy. This process may take up to 30 days.
- Review the response: Once the investigation is complete, the credit bureau will provide you with a response. If the mark is found to be inaccurate, it will be removed from your credit report. If it is found to be accurate, you can still request that a statement be added to your credit report explaining your side of the story.
Remember to keep a record of all communications and evidence related to your dispute. If the inaccurate mark remains on your credit report, you may need to continue to dispute it until it is removed.
To dispute something on your credit report go to Equifax.com and follow these instructions.
If you need help settling high debt on your credit report, call 1-877-332-8007, and an IAPDA Certified Specialist can assist you.
TIP #5 – Monitor Your Credit Report
FreeCreditReport.com, Experian.com, and AnnualCreditReport.com are excellent free websites to monitor your credit report and Score.
They will send you emails and text message alerts whenever your Score goes up, when it goes down, when something negative falls off your report, and when something negative goes on your report.
Monitor your success! Plus, monitoring services help you to protect your identity. For example, if Someone tries to steal your identity, you will be immediately alerted rather than finding out about it when it’s too late.
You can use many different monitoring tools, including Credit Karma.
TIP #6 – Use Your Cards Often
How to build credit fast with credit cards:
Use your credit cards for almost all purchases. Lots of credit usage helps build your credit score fast, as long as you pay your monthly balances, ensuring they stay under 35% of their credit limits. Conversely, you won’t improve your credit score if you get a credit card and keep the balance at zero dollars but have not used the card once in twelve months.
That said, paying your balances in full every month is the best practice and offers your credit score the maximum benefits.
Why is it better to pay your credit card balances in full?
Always remember that if you pay your account balances “in full” monthly, you avoid paying interest and save money, and your credit score will increase faster. So only buy something on a credit card if you can afford to pay it in full that same month. It’s a simple rule.
Paying your balance in full improves your credit utilization ratio. That’s why your credit score rises faster when you pay the balance in full monthly.
And for financially savvy people, you will have a credit card that pays you in the form of “reward points” and “cash-back” for all your purchases.
Why use your debit card or cash when grocery shopping when credit cards are available that pay you “cash back” on all your grocery store purchases? You can earn up to 5% cash back on all grocery purchases at the time of this writing.
TIP #7 – Have a Mixture of Credit Accounts
Your credit score will improve with a mixture of revolving credit and installment loans. Revolving debt is credit card debt, and installment loans are like your mortgage or car payment.
I recommend having 3-5 credit cards, a mortgage payment, and a car or installment loan to maximize your credit benefits.
TIP #8 – Don’t Pay Off Installment Loans Right Away
If you have a car loan, wait to pay it off in full until your repayment period’s last payment date because by paying it in full sooner, the account will get closed and your credit score will go down. Instead, continue to make monthly payments according to your loan contract, exactly as agreed.
Credit algorithms like to see payment history on installment loans and closed-end accounts for the entire repayment period. After you pay an installment loan in full, it gets closed (i.e., it’s a closed-end account). And closing credit accounts hurts your credit score.
TIP #9 – Keep Credit Cards Open
Credit cards are open-end accounts. Even after you pay the balances in full, they stay open, and you can continue borrowing from them.
Therefore, keep credit cards open.
It’s a big mistake when consumers pay their credit card balance in full only to close the card out immediately after.
Why keeping old credit cards open helps build excellent credit
- 1.) After you close a credit card, you lose all available credit on that card. Less available credit – equals a lower credit score, as we’ve already established above. Your credit utilization ratio accounts for 30 percent of your FICO score. So after paying a credit card balance in full, you have your maximum amount of available credit.
- 2.) After closing a credit card, you lose that card’s credit history, which can negatively affect your average length of credit—keeping your old credit cards open increases your credit profile’s average length of credit history. Your oldest cards influence your credit score more than any other cards.
According to Bankrate: “The length of credit history is worth 15 percent of your FICO Score and around 20 percent of your VantageScore credit score.”
Source Bankrate, How Length of Credit History Affects Your Credit Score
TIP #10 – See Credit Loophole to Raise Score (BONUS)
If you’re new to building credit, one of the easiest and fastest ways to establish positive payment history and increase credit scores is to get added as a joint account holder to Someone’s credit card.
For example, if your parents have a few credit cards with low balances (all below 35% of their credit limit) and their overall credit score is above 700 — you could get added to one of their credit cards. Consequently, their positive payment history will get transferred to your report.
You can then skip the hassle of dealing with a secured card and grow your credit score fast. However, the person must add you as a “joint account holder,” not just an authorized user. Joint account holders get equal treatment.
Their card also becomes your card, including the last five to ten years of history attached to it. So you’re piggybacking off their credit history.
When you get added as a “joint account holder,” you are now equally responsible for that card. Stan Lee says it best, “WITH GREAT POWER THERE MUST ALSO COME–GREAT RESPONSIBILITY,” which equals excellent rewards — and in this case, your credit score will go up fast.
Only get added to a credit card that –
- A.) Has a low balance
- B.) Is at least a few years old
- C.) Gets used monthly and paid every month
- D.) Is owned by someone with a high credit score and whom you trust