Whether I am asked by my friends, my family or by others I meet, the biggest question most of them ask is, “How can I build my credit.” The next question asked is, “Can I build my credit fast?” Just the fact that you’re reading this article shows how important it is to know the answer. Honestly, the answer to the second question, in my opinion, is subjective. There are some people, like myself, who at one time had no credit to now having excellent credit in 18 months. Personally, that’s fast if you asked me. However, 18, 12, even six months may not be fast enough for someone else. Consider, too, that it may take longer to build credit if you have any charge-offs, repossessions, or any tax liens. Regardless, the methods I will share with you will help you to easily and quickly build credit, whether by using credit cards, a loan or by exploring other avenues.
What Is Your Credit History
The first step before doing anything is to pull up your credit report for free. The official site to obtain your credit report for free is www.annualcreditreport.com. You can request your report by mail or by phone. By law, you are entitled to one free copy of your credit report every 12 months from each of the three credit bureaus, Equifax, Experian and Transunion (I refer to them as “The Big 3”). (Great news for Georgia Residents! You are entitled to TWO free credit reports. To obtain the second, just contact “The Big 3” directly.) I encourage you not to skip this important step. It provides the exact information that the banks and other financial institutions consider to approve or decline your credit request. It also will assist in boosting your credit score. How?
Once you receive your credit report, ensure that you have correct information on your report. Don’t fret if you see any misspellings of your name or address; that doesn’t affect your score. However, if you do see an address, name, or an account that is not yours, contact “The Big 3” as soon as possible. This could signal many things, but the most common are reporting errors from the credit bureaus (Hey, they’re not perfect) or identity theft. There are other things look for, including:
- Incorrect Social Security Number
- Same credit file listed more than once
- Any credit account, legal matters, or delinquencies cleared or settled, but are still showing on report
- Any credit account that’s older than seven (7) years (in most cases) that’s closed, but still on the credit report
If you recently applied for credit but was denied, having errors on your report may be the cause of your recent declination. The good news is that once any error removed from your record, this could improve your overall credit history, and thus your score, usually within 30-90 days.
Using Credit Cards to Build Credit
Applying for a credit card is a great and easy way to build credit. Credit cards are very helpful when establishing credit, and when used correctly, it will improve your credit-worthiness. The catch-22 is, because it’s so easy for approval, that if you’re not careful, it can create an avalanche of debt to your finances.
- Start off by applying for an unsecured credit card. In my personal experience, Capital One, Citi, and Discover are great companies to use for their cards. If you have little to no credit, they will start you off with their minimal approval amount, usually $300-$500.
- Use no more than 10% of the total limit. This shows “The Big 3” that you are responsible with credit and will show a positive mark on your credit file.
- Always pay 1-2 weeks before the due date. Everyone loves to get paid early and on time. Credit card companies are no different. However, if you do pay late, not only will you have late charges and interest added, this will hurt your credit. It could take months, perhaps years to recover from a late payment. The great thing about these three companies is that, if you forget to pay by the due date, they can forgive the late charge and will not report the late payment. Add a reminder, better yet, set up auto pay and you will never have this problem.
- If you are not approved for an unsecured card, ask if they offer secure credit cards. I love how secure credit cards work. The lender asks for collateral, usually money, to ensure that they security in case the card is left with an outstanding balance. Your credit card limit is based on how much collateral given, i.e. $300.00 credit limit with $300 held for collateral. Usually, after six months of proving your reliability (paying the balance on the due date, not going over your credit limit, etc.), they convert your card from secured to unsecured, and your money returned to you. All the while, your credit is building just as if you had an unsecured card.
- My recommendation is to have no more than three credit card accounts. This will ensure good card management and stave off the temptation to max out your credit limits, which will cause more damage. Also, apply for all credit cards (or any other credit loan/line) within the same month, so that “The Big 3” can consider all inquiries as a group. Doing this saves your score.
What if you apply for a credit card, but was declined? Perhaps your spouse, your parents or a friend allow you to become an authorized user on their credit card. Being an authorized user allows you to benefit from another’s credit history because whatever payments made on the account will reflect on your report. I caution anyone thinking about making someone an authorized user, however, because if payment are late or the account closes, it can have an adverse impact on your credit. There are many options to try before considering this step. Besides, even something as a declination letter from a credit card company can help you build your credit. (But, that’s for another article). Let me now tell you of other ways to build your credit, fast.
Other Options To Build Credit
Fortunately, credit cards aren’t the only alternative available to build your credit. In fact, you probably already have credit; you just don’t realize it. The following are some other ways to build your credit:
- Go to your local bank and ask for a home improvement loan. Many banks are required to provide these loans by the federal government to low-income areas. Even if you are not considered “low-income,” as long as your city, county or zip code recognized as such, you are eligible for this loan. For more information, contact your local Dept. of Housing and Urban Development (HUD) Office, or to your local, state, or county government housing department.
- Apply for a credit-builder product. Most banks and credit unions realized that many do not have credit, and they view this as an opportunity to assist, and to benefit from an untapped market of prospective customers. The solutions are providing credit builder loans, CD loans, or savings loans. It similar to a secured credit card, only that once the loan is paid off, the loan is closed and is no longer reportable on your credit report.
- Ask the bank if they can create credit history for you. This happened to me six years ago, when I had no credit. My wife and I were applying for a loan at my local bank. When they realized that I had no credit, they asked for proof of 2 years of utility bills. A few days later, I had a score of 617. For more info, go to your local credit union or bank; you may be surprised like me.
- Report your rent: Want an extra incentive to justify paying so much for rent? You may be able to use it as a credit source. According to The Wall Street Journal, “A new way to boost your credit history and score [is] factor[ing] your rent.” Some industries are starting to report consumers rent. RentReporters will report up to 2 years of your previous lease payments and will continue to report an additional two years. This can significantly impact your credit history, for it will show as a recurring credit line, like a credit card. (My Credpo Readers: As an agreement of being their brand ambassador, for a limited time, RentReporters are offering you a $20 discount for signing up. Go to www.rentreporters.com and enter code BA441 at checkout).
I hope you find this article very trustworthy and helpful. Keep in mind that there’s no “magic wand” that will take your credit from 300 to 850. Remember, “fast” is subjective. True, these tips may provide some immediate change. However, to have a lasting impact, slow and steady wins the race to build a solid credit history. Please, leave a comment on which methods worked for you; or even, share your credit building story to The Credit Post via email at firstname.lastname@example.org. I wish you all the best in your credit journey.
How to Contact the Credit Bureaus
Experian National Consumer Assistance Center
P.O. Box 2002
Allen, Texas 75013
General inquiries: 888-397-3742
Additional free credit report: 866-200-6020
www.experian.com/reportaccess (if denied credit within past 60 days)
TransUnion Consumer Relations
P.O. Box 2000
Chester, Pennsylvania 19022
General inquiries: 800-916-8800
Additional free credit report: 800-888-4213