Wondering the best way to build credit fast when you have none? Well, listen up. There is far more than one way to make it happen. Believe it or not, you’re probably already building credit and you’re just not yet aware of it. It won’t take a personal finance class to teach you how to establish credit. Understanding a few essentials will have you well on your way.
Building credit isn’t as much of a catch-22 situation as you think it might be. Paying your debts and bills on time is one of the easiest ways to establish credit. Making on-time monthly payments on your utilities, cell phone, or maybe even student loans is an excellent way to build your credit. Little by little, your credit score will improve.
Establishing good credit will help increase your lending capacity while earning financial credibility to your portfolio. Taking care of your credit now will certainly pay off down the road.
Here are some of the most tried and true ways to build credit.
1. Pay Your Bills
And pay them on time! This is one of the easiest ways to build credit. Simply paying your bills on time is one way to start building credit. If you happen to pay rent, it’s well worth your while to look into rent-reporting services. There are a host of providers which will add the existing payments, like rent or utilities, you’re currently making to your credit report. Keep in mind that not all credit scores take this into account, but many do, so these can help you earn credit where that credit is due!
2. Get a Credit Card
One of the simplest ways to establish credit is by using a credit card. All those payments that you’re already making – on groceries, at the pump, electricity – consider paying for them with your credit card. This is one real easy way to build credit without making any major changes. If you want to be fool-proof about this, set-up automatic monthly payments so you never miss a payment.
If you already have a credit but would prefer not to use it, keep it open. Existing lines of credit can help you retain your credit. Otherwise, if a family member or spouse already has one, becoming an authorized user on their account is an easy way to build credit when you have none.
3. Open a Secured Credit Card Account
If you’re unable to open a credit card account because you don’t have credit, open a secured credit card. These accounts work the same way as a credit card except this account must be attached to a savings account. You’ll most likely have a lower limit compared to most credit cards, but for smaller purchases it will work just fine. Like a credit card, it’s highly recommended to set-up automatic monthly payments. Listen up folks, there’s always a way for you to figure out how to establish credit.
4. Ask for an Increase in Your Credit Line
Have you already started building credit thanks to a credit card or diminishing student loan debt? Request an increase in your credit line. It’s helpful to have a high limit and a low amount of debt, what experts call your utilization rate. Asking for a higher limit while using the same amount of credit will help decrease your utilization rate, which will ultimately increase your credit score. Having the capacity to lend, but not needing it, is an easy way to build your credit.
5. Pay Your Debt(s)!
Debt in and of itself is not bad. Oftentimes having debt is how you can establish credit. Continually paying off your debt, like student loans and any other open lines of credit, is an excellent place to start. Do your best to keep balances low. If anything, pay the minimum. Lenders will be happy to see that you’re making an effort. This is only one of the many ways to build your credit.
6. Check Your Credit Score
It’s never too late to start building credit. Checking your credit score from the get-go will give you an idea of where you’re at. A simple demand for your credit report from a reputable institution will help you understand how your financial habits affect your credit score – for better or for worse! Know your score.
7. Take Out a Small Loan
Auto and small personal consumption loans are some of the easiest loans to obtain. Looking to buy a new ride or maybe a new computer? Consider applying for a small loan. Lenders see these smaller sums as less risky and are therefore more likely to grant small personal loans. Once you obtain that small loan, remember to be diligent about making your payments to slowly start building your credit.
8. Consider a Co-Signer
Having a co-signer is an excellent way to show financial institutions that you’ll be able to make the payments no matter what. Another way to build credit is by co-signing on a loan or credit card account if you’re having difficulties starting off. Be sure to sign with someone you trust and that you know has a stable relationship with their finances. Lenders appreciate the added security when two people are accountable for debt rather than one. Some institutions might even require one. Remember, it’s okay to get by with the help of your friends!
It’s Time to Start Building Credit!
Armed with these eight simplest ways to build your credit, your credit score will be perfect in no time. Here are some more resources to check out as your get started on your credit-building journey that will ensure you don’t shoot yourself in the foot during any step of the process:
- How to Get Approved for Credit Cards
- A Guide to Understanding Credit Card Interest Rates & APRs
- Balance Transfer Credit Cards Explained