Building credit can be an essential step towards financial security; however, starting from scratch can make this daunting challenge more daunting than anticipated.
Building credit should start by using credit responsibly and paying on time with a credit card, although other options such as secured cards or piggybacking off another person’s history should also be explored.
Pay Your Bills on Time
Good credit scores are key components of financial wellbeing. They allow you to obtain lower interest rates on loans and credit cards, be approved for mortgage or car loans and even qualify to rent apartments – however establishing such an established history may feel intimidating and daunting at first.
As part of building credit, making payments on time is of utmost importance. Late payments can significantly diminish your score. To prevent incurring costly late fees and fines, set up automatic payments or make a note to pay bills by their due dates each month if possible. Likewise, your credit card balances should also be cleared off each month, if possible.
One strategy to help improve your credit scores is reducing debt utilization – or the percentage of total available credit that is currently in use – which means carrying no more than 30%. By paying more than minimum payment amounts or maintaining low balances, debt utilization should gradually decline until it reaches below that target percentage and your scores begin increasing over time.
While it can be tempting to open a new credit card quickly, wait at least three to six months before applying again. This gives your credit time to improve while also helping to prevent lenders from seeing your applications as desperate and having an adverse impact on your score.
There are some banks who consider multiple recent credit applications a red flag and will automatically deny your application; this is particularly prevalent when opening an unsecured credit card product for people without previous history of credit.
At the same time, it is also essential to remember that while credit scores do fluctuate regularly, they take time to build. Establishing your credit history could take two years; until then, focus on improving any aspects of your credit that fall under your control such as paying bills on time and monitoring both scores and reports regularly.
Be an Authorized User on Someone Else’s Credit Card
Addition of an authorized user is one way for individuals without prior credit history to establish credit without opening new accounts themselves. Doing so also gives access to products and rates they wouldn’t otherwise qualify for alone, though be wary in selecting only responsible primary cardholders; otherwise this decision could end up negatively affecting both of your credit scores over time.
Credit card issuers usually enable you to add authorized users online or via mobile app; others require you to call them and request it. Either way, basic information like your name, date of birth, Social Security Number and contact details may be required in either instance; there may also be no credit check associated with becoming an authorized user; though some lenders report its addition regardless of whether you were approved for new credit or not.
When using an authorized user card with an excellent payment history and low credit utilization (the percentage of available credit being utilized), your scores should increase. However, if the primary cardholder’s card becomes delinquent or maxes out unexpectedly, this can adversely impact both parties involved; to protect this situation it’s imperative that they remain responsible and make timely payments themselves.
Once you no longer wish to use a card as an authorized user, you can request that its deletion from your credit report immediately. Typically this can happen in 30 days; however some issuers take longer. When withdrawing yourself from an account it’s important to notify creditors beforehand and ensure the account has been fully closed after withdrawal.
Utilizing multiple techniques can help quickly build credit, but remembering to establish good financial habits will be the cornerstone of success. When paying on time with no debt accumulation, your scores should increase quickly.
Apply for a Secured Credit Card
If you are rebuilding credit or starting from scratch, a secured credit card can be an ideal way to begin. These cards require an initial cash deposit which serves as the credit limit; many are tailored specifically towards those with bad credit history and often report account activity directly to credit bureaus – helping build your history over time if used responsibly.
When applying for a secured credit card, its issuer will conduct a hard inquiry of your credit report in order to assess your creditworthiness and may result in a hard inquiry being added as a “detail,” which could temporarily lower your score. However, if you’re trying to build credit and have recently been denied loan or other forms of credit applications, it may be prudent to wait some time between applications for credit cards before applying again.
Secured credit cards differ from their unsecured counterparts in that they typically don’t require an annual fee, with your security deposit usually returned if you switch cards or cancel/move to one with higher interest rates; however, their interest rates tend to be higher; it’s also important to understand that carrying an outstanding balance could cause your credit utilization rate to increase and negatively affect your score.
As you establish credit with a new card, it’s generally best to charge small amounts and keep the balance well below your credit limit in order to minimize credit utilization ratio – one of the key determinants in your score.
Secured credit cards can be an invaluable asset when it comes to building or reestablishing credit, and can be an economical choice for all. There are numerous offers online; browsing them will help you narrow down the card that meets your specific needs. Just remember it takes time, so be patient while making responsible use of the card – best wishes!
Apply for a Loan
An outstanding credit score can open doors to financial opportunities that would otherwise remain closed, including better mortgage, auto, and credit product terms and rates. Building it from scratch may seem impossible at times; however there are steps you can take to speed up this process.
Start off on the right foot by becoming an authorized user on someone’s credit card account, such as your spouse or parent. Speak with the primary cardholder, who should agree to add you as an authorized user, before paying on time and keeping balances under 30% of limit – two things which will boost your score!
No matter your credit situation, this process is accessible even with limited or no history. A recent TransUnion study indicated that two-thirds of new-to-credit consumers opened credit cards as their initial product – likely due to being easier to get approved for than loans and contributing quickly towards building credit with responsible usage.
Be wary about applying for credit cards too frequently or too frequently applying for multiple lines at once; each credit card application triggers a hard inquiry which may lower your score and lenders often don’t like seeing too many applications at the same time.
Before applying for a new credit card, aim to wait at least six to 12 months as hard inquiries do not have as much of an effect on your score during that timeframe. Also, applying for too many cards at once may cause lenders to question why and suspect you of trying to game the system.
Some financial institutions have their own policies regarding when you should apply, so it’s best to get in touch with the lender of your choice and ask about their policies on when applications should be made. Chase reportedly has an unofficial rule where four cards from them can only be opened within any 24-month period.
