Get your credit score under control and achieve financial freedom. Check out these fast and easy ways to build credit so you can live life more and worry less.
14% of the population are credit invisible — meaning they have no credit.
So what? We’re all born without credit, right?
Yes. But as we grow out of youth-hood, we begin to want and need things. Like jobs. Houses. Cars. And sometimes, unexpected emergencies come up.
To handle these things, we’ll need credit. Even if you have the money, you still need a credit score.
To understand ways to build credit, you first have to understand what a credit score is.
What is a Credit Score?
A credit score is your credit history summed up as a single number.
The most common measurement of credit comes from FICO, Fair Isaac Corporation. We’ll only discuss FICO scoring because of how prevalent it is for assessing finances.
Your FICO credit score consists of the five categories below.
This is 10% of your score and consists of how much new credit you have. You don’t want to open various lines of credit in a short time span.
Refrain from making inquiries for new credit within a 12-month time span.
If you need to you can. Just keep in mind it can affect your credit score. FICO receives requests from lenders when you ask for more credit.
Also weighing 10%, your credit mixture is the different types of credit you have.
You can have fixed payment credit, such as student loans and mortgages. The other type is revolving credit, such as credit cards and home equity lines.
Having a diverse credit mixture won’t harm you but it is a consideration in your credit score.
This is how old your credit lines are, dating back to when you got them. Older credit lines give you a higher credit score.
This accounts for 15% of your FICO score.
Another way to think of this category is total debt versus total credit limit. This amounts owed ratio is 30% of your score.
If you max your credit out to the limit, your credit utilization is high. This hurts your score.
Your payment history is the amount and time you paid your credit bills. This is the largest part of your FICO score, weighing 35%.
When you make payments more than 30 days late, it hurts your credit score. And more than other areas affecting your score, bad payment history takes the longest to fix.
Now that you understand credit scores, here’s how you can make a positive effect. This list also helps if you need credit repair.
8 Ways to Build Credit
1. Get a Secured Credit Card
If you don’t have any credit, you’ll need to apply for a secured credit card. You put a deposit down upfront, typically the same amount as your limit.
Secured credit gets your foot in the door to later get an unsecured credit card. Unsecured cards have better benefits and don’t need a deposit.
Before you get to that point, you’ll have to show the lender that you are trustworthy. Look for credit lines that have a low annual fee.
2. Make Payments on Time
To ensure you aren’t late, set payment reminders. This is the biggest part of building credit as payment history makes up for 35% of your credit score.
Aside from emergencies, it’s a good practice to pay off your debt as you spend it. Don’t spend money you don’t have.
Another strategy is to make micropayments to keep your balance low.
3. Keep Owed Balances Low
Again, keeping balances low keeps your credit utilization down (which is 30% of your score).
Micropayments, or small recurring payments throughout the month, keep your debt ratio down.
You should only use 30% of your maximum amount offered, at most. If you have a card that’s maxed out, another option is to open another line of credit.
Only do this if you will be able to pay it off and if you haven’t opened a line of credit in the past 12 months.
4. Don’t Open New Credit Lines to Improve Your Score
Yes, having multiple credit lines is a way to improve your credit utilization, but be careful. This can lead to more debt if you aren’t managing your money.
Plus, opening a bunch of credit lines at once won’t immediately boost your score.
Only open credit lines as needed. This isn’t a situation where more is better.
5. Only Close Accounts When Necessary
Closing an account shows up on your credit report. Just because you aren’t using it doesn’t mean that it’s not still in the system.
If you keep your accounts open longer, your credit age will rise. This can increase your score over time as 15% is credit age.
6. Check Your Score Regularly
Make it a point to get your score annually. You can check it directly through FICO or use free major credit bureaus.
These include Equifax, Experian, and Transunion.
This is an important part of building credit as it gives you an opportunity to check for mistakes. Errors in your report can keep you from building a good credit score.
7. Keep Reducing Debt Owed
This may be obvious, but you should be decreasing your debt owed over time.
Don’t get in the habit of paying the minimum balance due and then continue to spend your credit line.
8. If You Don’t Have Good Credit — Don’t Sweat
Everyone starts off without credit. It takes time to build it up.
To rule your finances you’ll need to build your credit up. However, that takes time.
If you find yourself in a situation where you don’t have time yet you need a loan, there are options for you.
You can get no credit check loans online for your short-term cash needs.
Using these tips will build your credit up slow and steady. But how do you know what your credit score means?
How Do You Read a Credit Score?
Credit scores vary from 300 to 850.
A score of 850 is a pipe dream for most of us. In reality, we’ll maybe reach and maintain “very good” credit, if we follow the tips described above.
It’s more realistic to shoot for “good” credit, as the average FICO score is 695.
Here’s a breakdown of how the ratings go:
- Poor: lower than 580
- Fair: 580-669
- Good: 670-739
- Very good: 740-799
- Exceptional: 800+
Once you get your report back, you can see where you rank on this list. This gives you an idea of how your finances look to outside parties, such as lenders or employers.
Work Smarter, Not Harder
If your credit score isn’t “exceptional”, don’t worry. Follow these ways to build credit and you’ll see your score rise over time.
Being smart with your finances makes your efforts easier in the long run. Plus, it opens up big opportunities like buying a house or starting a business.
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