KreditSanta Commitment:The information provided here serves as general guidance and may not cater to your specific circumstances, hence not constituting personalized advice. Some products mentioned are affiliated with our partners, and we may receive compensation. For tailored financial advice, we recommend consulting one of KreditSanta's expert mortgage advisors. While we aim to highlight excellent products, our selection may not cover all market offerings. Additionally, we strive for accuracy but advise verifying details with the product provider before making decisions.
Building credit can feel like a catch-22. Just as you need money to generate more money, you need credit to build credit. This can be frustrating if you're starting with a blank slate.
Whether you're applying for a credit card or purchasing a house, solid credit is a must-ask. Without it, you risk being rejected or paying higher interest rates.
If you're aiming to enhance your credit score, the 2024 hacks and shortcuts shared by our mortgage advisor, Micah Greenberg, are exactly what you need. While noticeable improvements may take a few months, you can begin enhancing your score today.
Let's jump right in!
Basics of How Credit Actually Works
Imagine you're at a friend's BBQ, and they lend you their favorite grill. You promise to return it by the end of the weekend. Your friend trusts you because they know your track record of keeping promises. In this scenario:
-
You borrowing the grill is like using credit.
-
Your promise to return it is similar to making a payment on time.
-
Your track record of keeping promises reflects your credit history.
Credit scores typically range from 300 to 850, with higher scores indicating better creditworthiness. Here's a quick breakdown:
| Source | Classification |
|---|---|
| 300-579 | Poor |
| 580-669 | Fair |
| 670-739 | Good |
| 740-799 | Very Good |
| 800-850 | Excellent |
Source: MyFico.com
There are various types of credit, each serving different purposes -
-
Revolving Credit: Credit cards are a common example. You're given a credit limit and can borrow up to that amount, paying it back over time.
-
Installment Credit: This involves borrowing a specific amount and repaying it in fixed monthly installments, like car loans or mortgages.
-
Open Credit: Think utility bills or cell phone contracts. You use a service and pay for it later.
-
Secured Credit: Requires collateral, such as a deposit for a secured credit card.
Beyond these types, there are a few other things to keep in mind -
-
Credit Utilization: This is the ratio of your credit card balances to your credit limits. Keeping it below 30% is generally advisable.
-
Credit Inquiries: When you apply for credit, it triggers a hard inquiry, which can temporarily lower your score.
-
Payment History: Timely payments are crucial for maintaining a good credit score.
-
Credit Mix: Having a mix of different types of credit can positively impact your score.
Is it Possible to Increase Your Score by 100 Points?
If you're having trouble with a low credit score, there’s a silver lining - you're actually in a great spot to make big improvements pretty fast compared to people with good credit scores. Let me tell you why!
But is a 100-point increase realistic? According to Rod Griffin, senior director of public education and advocacy at Experian, the answer is a resounding yes.“The lower a person’s score, the more likely they are to achieve a 100-point increase,” he explains. “That’s simply because there is much more upside, and small changes can result in greater score increases.”
|
⚡💡Remember
While you're striving for a higher score, remain patient, stay disciplined, and monitor your progress to make necessary adjustments. |
Now, let's explore some effective strategies to build your credit faster.
11 Hacks & Shortcuts to Build Credit Faster
-
1. Pay Twice a Month
Instead of making just one payment a month on your credit cards, consider paying twice. This reduces your balance before it’s reported to the credit bureaus, lowering your credit utilization ratio. By spreading out your payments, you keep your balance lower, which is beneficial for your score. For example, if your bill is due on the 30th, try making one payment on the 15th and another on the 28th.
-
Effect on Credit Score: Reduces credit utilization ratio, improving your score.
-
Time Span: Minimal, just split your monthly payment into two.
-
How Quickly You’ll See Results: Fast. Reduced balances are quickly reflected in your credit report.
-
|
⚡Important Note |
-
2. Request a Credit Limit Increase
-
Effect on Credit Score: Improves credit utilization ratio by increasing available credit.
-
Time Span: Minimal, usually a quick request to your credit card issuer.
-
How Quickly You’ll See Results: Fast. If approved, the new limit is reflected quickly.
Increasing your credit limit can lower your credit utilization ratio, provided you don’t increase your spending. Contact your credit card issuer and ask for a higher limit. This can be done online or through customer service. For instance, if your current limit is $1,000 and your balance is $300, increasing your limit to $2,000 drops your utilization from 30% to 15%.
-
3. Become an Authorized User
-
Effect on Credit Score: Benefits from the primary user’s positive credit history.
-
Time Span: Minimal, just involves being added to the account.
-
How Quickly You’ll See Results: Varies. Depends on the issuer’s reporting practices.
Being added as an authorized user on someone else’s credit card can boost your credit score. The primary cardholder’s positive credit history will reflect on your report. Choose someone with a good credit history and ensure they continue to make on-time payments. Let’s say, a parent or spouse might add you to their card to help you build credit.
-
4. Use a Secured Credit Card
-
Effect on Credit Score: Helps build or rebuild credit with responsible use.
-
Time Span: Moderate, requires setting up a new account and managing it.
-
How Quickly You’ll See Results: Slow. Takes time to establish a positive credit history.
Secured credit cards require a deposit that serves as your credit limit. They are great for building or rebuilding credit. Use the card responsibly by making small purchases and paying off the balance in full each month. Like, if you deposit $500, that becomes your credit limit. By making small purchases, such as gas or groceries, and paying them off promptly, you build a positive credit history.
|
⭐Pro Tip Enable the high balance alert feature on your credit card to monitor your spending and avoid exceeding a healthy credit utilization ratio. |
-
Pay Off Debt Strategically
-
Effect on Credit Score: Reduces debt and improves credit utilization.
-
Time Span: Moderate to high, depends on your debt amount.
-
How Quickly You’ll See Results: Varies. Depends on how quickly you can pay down debts.
Focus on paying off high-interest debt or debt that is close to its credit limit first. This reduces your overall debt burden and improves your credit utilization ratio. One such example is, if you have a credit card with a $1,000 limit and a $900 balance, paying it down to $300 will significantly improve your utilization ratio.
-
6. Keep Old Accounts Open
-
Effect on Credit Score: Maintains credit history length and available credit.
-
Time Span: None, just keep the account open.
-
How Quickly You’ll See Results: Fast. Benefits are continuous as long as the account remains open.
Even if you’re not using an old credit card, keeping it open can benefit your credit score. It contributes to the length of your credit history and increases your available credit, both of which positively impact your score. Just ensure there are no annual fees or other costs associated with keeping the account open. Say, an old card with no annual fee can help maintain a long credit history.
-
7. Dispute Credit Report Errors
-
Effect on Credit Score: Correcting errors can boost your score.
-
Time Span: Moderate, involves reviewing reports and filing disputes.
-
How Quickly You’ll See Results: Varies. Depending on how quickly disputes are resolved.
Regularly check your credit report for errors. If you find inaccuracies, dispute them with the credit bureaus. Correcting errors can quickly improve your credit score. Be diligent about reviewing your reports and addressing any discrepancies promptly. If you find an account listed as delinquent that you’ve paid off, dispute it to have it corrected.
|
You have the option to obtain your credit report in Spanish directly from any of the three main credit bureaus: For Experian: Click on the link provided or dial 888-397-3742. For TransUnion: Dial 800-916-8800. For Equifax: Visit the provided link or dial 888-378-4329. |
-
Use Experian Boost
-
Effect on Credit Score: Adds positive payment history to your credit report.
-
Time Span: Minimal, just sign up for the service.
-
How Quickly You’ll See Results: Fast improvements can be seen within a month.
Experian Boost allows you to add utility and telecom payments to your credit report. This can be especially helpful if you have a limited credit history. By including on-time payments for utilities and phone bills, you can potentially increase your credit score. Like this - if you’ve consistently paid your electric bill on time, this can now contribute positively to your credit report.
|
Get Your Credit Report Instantly for Free Check credit for bills you’re already paying, such as utilities, phone services, streaming subscriptions, and rent. |
-
9. Set Up Automatic Payments
-
Effect on Credit Score: Ensures consistent on-time payments.
-
Time Span: Minimal, involves setting up the payments.
-
How Quickly You’ll See Results: Fast. On-time payments are quickly reflected in your score.
Setting up automatic payments ensures that you never miss a due date, protecting your payment history. Most banks and credit card companies offer this service, which can be set up through their websites or mobile apps. Consistent on-time payments are crucial for a good credit score.
-
10. Limit Hard Inquiries
-
Effect on Credit Score: Reduces the negative impact of hard inquiries.
-
Time Span: Minimal, avoid unnecessary credit applications.
-
How Quickly You’ll See Results: Varies. Depending on the timing of inquiries.
Each time you apply for credit, a hard inquiry is recorded on your report, which can temporarily lower your score. Limit the number of times you apply for new credit to avoid these dips. Be strategic about when and why you apply for credit to protect your score. Avoid applying for multiple credit cards within a short period.
-
11. Use Rent Reporting Services
-
Effect on Credit Score: Adds positive rental payment history to your credit report.
-
Time Span: Minimal, just sign up for a rent reporting service.
-
How Quickly You’ll See Results: Fast improvements can be seen within a few months.
If you’re renting, use a rent reporting service to add your rental payments to your credit report. Many landlords don’t report rent payments to credit bureaus, but these services can ensure that your on-time rent payments contribute to your credit history. Services like RentTrack or Rental Kharma can report your rent payments, helping build your credit score.
How to Get Help With Your Credit? The Bottom Line
Improving your credit doesn’t have to be a solo task. Start by looking into credit counseling services. These professionals can provide personalized advice on managing debt, understanding your credit report, and creating a realistic budget. Many of these services are free or available at a low cost, making them accessible for anyone looking to improve their credit health.
You can also tap into online resources like credit education websites, forums, and tools that help you track and understand your credit score. Additionally, many banks and credit card companies offer credit management services and tools, such as free credit score monitoring and financial advice.
Need professional advice? KreditSanta has the answers you need.