Your credit score has a huge impact on your financial life. Having good credit can help you get loans for cars or college, get better interest rates, better rewards for credit cards and even help with insurance.
Having bad credit can limit your ability to open credit cards or get loans to help pay for some of life’s costly purchases like a house or car. Many don’t realize it but having bad credit can even impact if you’re approved for an apartment or even getting a job.
It’s critical to understand why credit is important because without credit you’re basically stuck paying cash for everything. Good news, building credit doesn’t have to be difficult and really starts with setting the right budget and habits with your finances.
The traditional credit-building methods of opening an account, maintaining a low balance and making on-time payments are critical to being creditworthy. There are some new ways to build credit and credit companies are becoming more open to these ways, such as using your phone payment as a credit builder.
There are many ways to build credit, below we step you through many of the ways you can build credit, learn how to build credit fast and build long-term habits for financial freedom.
Building Credit with a Credit Card
A credit card is one of the fastest ways to build credit and is the easiest way, once you have credit, to diversify your credit background. In order to take advantage of a credit card you should pay on time and in full. You’ll want to keep your balance minimal as most credit cards, even with good credit, come with high interest rates.
Types of credit cards:
- secured credit card
- starter credit cards
- retail credit cards
- student credit cards
Establishing credit with a credit card is great because it hits on all the key areas for credit score calculation: payment history, credit utilization, length of credit history, new credit, and credit mix.
How to be an Authorized User
In many cases, it’s hard for someone who has no credit to get a credit card. The best way to establish credit if you have no credit is to become an authorized user on someone else’s credit card or open up a joint account with someone who has a good history.
We often urge parents to consider helping their children with little or no credit history by adding them as authorized users on their own credit cards. You’ll have to review the requirements for each of your accounts but most allow authorized users starting at the age of 13. By doing this, a parent can set their child up for financial security, and freedom, before they even graduate high school.
Building Credit without a Credit Card
A credit card is the conventional way most people start building credit but it’s not always the best way for you or how many start out. A credit card is a lower risk route to take when it comes to building credit for the first-time.
If a credit card isn’t in your wheelhouse or you keep getting denied, there are alternatives and the easiest way is to look at your current position in life. You’ll most likely run into:
How to Establish Credit with No Credit History
If you’re just starting out, it’s rather difficult to find someone to lend to you. There are some ways to start out on the right foot. Here are some tips on how to break the ice with your credit:
- Talk to your bank you currently have a checking account or savings account with and see what they’d offer you.
- Find a few secured credit cards and identify which ones fit your current financial situation.
- Instead of going for a major credit card brand, try store credit cards.
- Ask your parents, friend, or other family member if they’d be willing to cosign or add you as an authorized user.
How to Build Credit Fast
The best way to build credit fast is to practice good money habits. It takes awhile to get an exceptional credit score.
Just like with investing, your credit takes time to adjust and reflect the work that you’re doing. You may not see immediate results but you should see something within 3-6 months.
Here are the proven ways to build credit fast:
- Pay all of your bills on-time.
- Keep all of your balances under 30% unless you strictly can’t (ex: house mortgage).
- Don’t apply or open several lines of credit or credit cards at once.
- Keep as many of your accounts open as possible as the older the account the better.
- Keep an eye on your credit report and dispute any errors.
By practicing the above six ways to boost your credit score you will see your score rise very quickly. In most cases it takes 3-6 months but in some, depending on how much you handle, you could see results within 30-45 days.