Tips to Build Your Credit

Understanding Credit Scores

Anyone who’s ever applied for a loan, credit card, or car insurance knows how much credit scores can matter during applications. But why is a three-digit number so important? The truth is that credit scores can help lenders predict the likelihood of a person repaying their debts on time, and it is one of the many indicators of an individual’s overall financial health. If you’re thinking about applying for a loan but you don’t have a good credit history, it’s smart to search for tips to build your credit in order to increase your chances of getting approved for funding.

Before you work on building your credit, understand that there are different types of credit scoring systems. The main credit score models are the FICO and VantageScore^Ⓡ models, but lenders will commonly use FICO scores from one or more of the major credit bureaus when it comes to evaluating an individual’s ability to make a loan payment. When a person’s credit score is high, they have a greater chance of receiving loan approval with better interest rates compared to those with scores in a lower range. An applicant’s FICO score is impacted by the following factors:

• Payment History
• Total Amount Owed
• Length Of the Credit History
• New Credit
• Credit Mix

Most credit scores will range between 300 and 850, with 300 being very poor and 850 being exceptional. If you maintain your FICO credit score in the 670-739 range, you’ll have a “good” credit score, so it may be easier for you to qualify for different financial products, lower interest rates, and better credit card rewards.

If you’re looking to get an 800 credit score in 45 days, know that you may not be able to raise your score that quickly, but you can proactively use tips to boost your credit and create a stronger financial history. Building up your credit score is a process that usually takes time and effort in order for you to see progress. It might not happen as fast as you’d like. However, you may see your credit score grow steadily in just a few months if you’re a responsible borrower and use different methods to improve your overall financial health! Continue reading to learn different tips to build your credit and keep your score in good standing.

What Are Some Tips to Build Your Credit With a Credit Card?

Using a credit card to build up your credit may be an option to consider. Credit card issuers typically report your payment activity to the major credit bureaus. Bureaus like Equifax and Experian will use that information to create your credit report, and in turn, determine your credit score.

If you don’t have a strong credit history, it can be harder to receive approval for unsecured debt, like credit cards and personal loans. But even if you have a low credit score, you can apply for a secured credit card and work to improve your credit by using it responsibly. Secured credit cards typically require a cash deposit, which acts as the collateral on the account. Since this type of card is secured by the funds you provide to the issuer, you can expect a much more flexible application process. By using a secured credit card and consistently paying off your balance on time, you can build up a solid payment history, which can positively impact your credit score.

Check out some other useful tips to build your credit by simply using a credit card today:

• Pay Your Credit Card Bills on Time Each Billing Cycle
• Maintain a Low Credit Utilization Ratio By Limiting Your Spending
• Keep Your Accounts Open to Prolong the Length of Your Credit History
• Avoid Applying for Multiple Credit Cards in a Short Amount of Time
• Pay Off Your Entire Credit Card Balance As Often as You Can

Being responsible with your credit cards is one of the key tips to building up your credit history over time. Although there are different credit card options available, it’s essential that you choose a card that best benefits you. Make sure that you review the different available options and don’t be afraid to talk with the issuer about any perks or rewards. If you’re looking to get a credit card for the first time, you may have limited options compared to applicants who already have established credit histories.

How Can I Build My Credit Score Without a Credit Card?

You may wonder if there are any alternative methods to improve credit without using a credit card. Even if you have decent credit, there may be some personal reasons why using a credit card just doesn’t work for you. Fortunately, various techniques can help you build up your credit without having to apply for a credit card.

Take a look at some handy tips below to start boosting your credit score:

• Apply for a Credit-Builder Loan: A credit-builder loan is an installment loan that allows you to improve your credit over time by being a responsible borrower. When you make your loan payments on time each month, the lender will report that activity to a credit bureau, which can help you build your credit throughout the loan term. The disadvantage of this option is that you won’t have access to your funds until you’ve completely paid off your loan. However, you can apply for another loan type with a co-signer, like a title loan, and get emergency cash in as little as one day even if your credit score is low.¹ If your title lender or loan servicer reports your payment behavior to Equifax or another credit bureau, that can positively affect your credit score!
• Get Credit for Monthly Bills: Usually, paying for your living expenses like your electric or phone bill will not impact your credit because your payment behavior is not reported to a major credit bureau. However, there is an online service that monitors your monthly payments and adds them to your Experian credit report! If you make on-time payments, this type of service could help increase your credit score. However, keep in mind that this service may not impact all of your scores generated by your credit reports.
• Become an Authorized User: An authorized user is a person who has been added to a primary cardholder’s credit card account. Becoming an authorized user on someone else’s credit card can help you build or restore your credit history because the account will appear on your credit report. If the payments are managed well and the credit utilization rate stays low, this can be an ideal way to improve your credit score.

What Is the 15-3 Rule for Credit Scores?

As mentioned above, paying your credit card bills on time and keeping your credit utilization low are great tips to improve your credit score. However, some individuals who want to speed up the credit repair process consider a strategy known as the “15-3 Rule.” Through this method, a cardholder splits their bill into two payments: one payment 15 days before the due date and the other one should be made 3 days before the due date. The idea behind this repayment plan is to make two separate payments to get your credit card issuer to report multiple on-time payments to your card each month. Unfortunately, this trick is not all that it appears to be.

Dividing a credit card bill into two payments each month doesn’t necessarily build up your credit score. Your credit card issuer will report your payment activity to the major bureaus once a month, so the account will show up as “current” on your credit report. Multiple payments may not be reported, so this strategy can be a waste of your time unless you are trying to make extra payments to get your credit card balance down. Paying more than the minimum amount that you owe can be a smart strategy if you can afford it! Decreasing your overall credit utilization can also positively impact your score.

Avoid unnecessary social media hacks and stick with the proven methods people have used in the past. There’s no need to waste time dividing your payments each month if it ultimately doesn’t affect your credit report.

How Can Monitoring Your Credit Reports Help You Boost Your Credit?

Being a responsible borrower goes beyond staying on top of your payments and avoiding reckless financial decisions. It’s also important to be responsible for your credit report! You may be able to boost your credit score even further by monitoring your credit reports consistently. When requesting a copy of your credit report, make sure to dispute any errors that you find. By looking over your credit report every month, you can identify and correct any mistakes as soon as possible. Errors like incorrectly reported delinquent accounts or open accounts being listed as closed can hurt your credit, so you need to stay on top of this!

Additionally, if you plan on getting a loan in the future, your credit report can give you a better idea of what lenders may see during your loan application. You can receive a free copy of your credit report from AnnualCreditReport.com or any of the three major credit bureaus once a year.

Common Mistakes to Avoid When Improving Your Credit Score

Take a closer look at some of the most common mistakes that you should avoid when trying to build your credit history:

• Developing Habits that Lower Your Credit Score, Like Making Late Payments or Keeping a High Credit Utilization Ratio
• Not Paying Off Your Balance in Full Each Month
• Not Looking at Reports from All Three Major Credit Reporting Bureaus (TransUnion, Equifax, Experian)
• Closing Credit Card Accounts Unnecessarily
• Not Consistently Checking Your Credit Score to Dispute Errors
• Applying for Multiple Credit Cards Simultaneously

As you may already know, boosting your credit score will typically take time and effort, so you may not get into a better position right away. However, you can avoid extending that timeframe unnecessarily by having healthy spending habits and avoiding any counterproductive actions.

What Are Some Credit Building Tips for Maintaining a Good Credit Score?

Suppose you finally reach a good credit score after working so hard. The journey isn’t over yet – you need to maintain that score! Don’t forget that a high credit score makes it easier for you to qualify for loans, get lower interest rates, and rent a nicer apartment.

Here’s a closer look at some credit-building tips for maintaining good credit that you may already be familiar with:

• Stay on Top of Your Loan Payments and Credit Card Bills
• Keep Your Overall Credit Utilization Low
• Make Sure Your Oldest Credit Accounts Stay Open to Show a Longer Credit History
• Use Your Credit Card Regularly to Avoid Issuers Closing Your Account Due to Inactivity
• Only Apply for New Credit When Necessary

No matter what your credit score is, it’s important to always practice good financial habits! Although it’s difficult to improve your credit score quickly, you may see it grow steadily over time if you make a solid effort to fix it.