How to build credit

By: Heather Hanks Apr. 8, 2019

Do you find yourself asking, “How can I build my credit?” If so, you’re not alone. Millions of people search for ways to build credit every day. The best thing you can do to build credit fast is to learn about credit and how it works. This might sound like too simple of a task, but it helps to know everything you can about credit before you try to build it. 

It can take time to build credit, but that doesn’t mean you can’t get started today. You can use a credit card to build credit or you can do it without one. Establishing good financial habits is the secret to how to build good credit. This article shows you how to build credit score using healthy financial behavior. You’ll also learn the ins and outs of credit and the best ways to build credit with and without a credit card.

What is a Credit Score?

If you want to know how to build credit, then you’ll need to know what your credit score is. Your credit score is a three digit number that represents your credit worthiness or your credit risk. This number represents how likely you are to pay your bills on time. The number usually ranges between 300 and 860.

Your credit score is calculated using various different data. This includes the information on your credit report as well as your payment history. Other factors that determine your credit score are the length of your credit history and the amount of debt you owe. The higher your credit score is, the more responsible you are likely perceived by banks and other lenders. Having a low credit score means that banks and lenders run the risk of you not paying your bills on time if they extend you a loan. A high credit score makes potential creditors and lenders confident in your ability to pay your bills on time when extending you a loan.

Here is a look at the different credit score ranges:

Poor

Score from 300 to 579

Fair

Score from 580 to 669

Good

Score from 670 to 739

Very good

Score from 740 and more

Banks and credit lenders will use different data and scoring models to determine your credit score. For example, some companies will look at your annual income as well as your level of education and employment status. Some institutions lend credit based on the potential earnings of your college degree. Credit scores are used by institutions that lend credit, such as credit card companies, car dealerships, and banks. They use this information to decide whether or not to extend you a loan.

Your credit score is important because it determines your eligibility when it comes to borrowing money. Having a high credit score means that you are more likely to secure a loan as well as better terms than someone with a low credit score. Having a low credit score means that you are too risky to do business with. Banks and other lenders may refuse to extend you a loan or hit you with high interest rates if you're lucky enough to get one. This means you will end up paying more money make up for a low credit score. Over time, you may end up paying more fees and higher interest rates than someone who has good credit and is not seen as such a risk.

What is a Good Credit Score?

If you want to know how to build your credit score, then you’ll need to know what to aim for. A fair credit score is one that exceeds 580. However, a good credit score is considered above 670. The higher your credit score is, the better. Having a good credit score means that you are more likely to receive favorable terms from banks and other lenders. This may include better interest rates, lower fees, and more money up front. Some banks and lenders may refuse to do business with you if you do not have a good credit score.

Why Credit Scores Matter?

It doesn’t take long to learn how to build your credit, but it's important to know why you're doing it. Your credit score matters because it represents how responsible you are. Having a low credit score often means that you are too risky to do business with and cannot handle the responsibility of making timely payments. In the eyes of banks and credit lenders, your credit score means everything.

Your credit score doesn't just affect your ability to receive loans and borrow money. It may also affect your ability to make major purchases, such as to purchase a house or vehicle. It may also affect your refinance terms. Your credit score may affect things you didn't consider. For example, you may not be able to rent a home or lease a car if you have a low credit score. All major purchases and big financial decisions may come down to how good your credit score is. Without a high number, you might miss out on an opportunity that you otherwise could have had if your credit was good.

Here are five reasons why having good credit matters:

1

It can affect your mortgage.

Before buying a house, mortgage lenders want to make sure that you can make your payments. They do this by checking your credit score. If your credit score is not high enough, then your lender may deny you a loan. This means that you may not be able to buy the house that you want in the area that you want to live in. If you are approved for a loan, your credit can affect your interest rate. This directly influences how much money you will spend on your mortgage each month. If your interest rate is too high, then you may need to look for another house elsewhere outside of the area that you want to live in.

The same thing applies to renters. Your landlord will likely check your credit to make sure you can make monthly payments on your rent. If you don't have good credit, then your landlord may deny you the home or apartment you want to live in. If your credit is bad and your landlord decides to take a risk on you, then he or she may increase your monthly payments or interest rate to make up for your risky credit score.

2

It can affect your car payments.

Having a bad credit score can affect the type of car you drive and how much you pay for it. This is because car companies may check your credit score before selling you a vehicle to ensure that you are likely to pay it back on time. If you don't have the cash you need to purchase a vehicle, then you'll probably need to take out a loan. Your credit score can affect whether or not you will get one and how much you will pay for it. If you have bad credit and a credit lender still chooses to lend you a loan, then you may end up paying more money for your car each month then you thought. This may cause you end up with a lower costing vehicle or one that you didn’t want so that you can manage your payments.

3

It can affect your job search.

Before hiring you, many potential employers will check your credit report. In doing so, they will be able to see your credit score. A high credit score can signal that you have demonstrated financial responsibility and would be a good addition to the company. This is a desirable trait to have as a future employee.

Having a low credit score means that you may be perceived as too risky to hire. They may also be able to look at your level of debt and consider whether or not the salary you are offered will be worth it to you. Some employers may also check your credit score before giving you a raise. This is especially true for executive positions or other financial-related promotions.

4

It may affect your monthly bills.

Your credit score is needed to help you establish your utility service. This means that before turning on your electricity, the electric company might check to see what your credit score is. This includes other utility services such as telephone, water, cell phones, and cable. Having bad credit means that your utility service providers might charge you extra to make up for your risky behavior.

5

It may affect your ability to start a business or become self-employed.

If your dream is to start your own business, then you will need to have a good credit score to make it happen. Unless you have the cash you need upfront to fund your business, then you will likely need to take out a loan. Taking out a loan requires you to have a good credit score. Without the funding you need to start up your business, you might not be able you pull it together.

The Factors That Affect Your Credit Score

Before you can learn how to build a credit score, you’ll need to know what factors affect your credit number. There are several factors that can affect your credit score. The two primary ones are your level of debt and your ability to make payments on time. Other factors that influence your credit include how many inquiries you have on your credit report and how long your credit history is.

Creditors and lenders like to see that you have a long history of making payments on time. Falling behind on your payments is the primary reason why your credit score drops. This is also one of the major reasons why many people fall into debt. This information is reflected on your credit report where it stays for many years after the fact. Time cannot erase negative items on your credit report. This is why it's important to make sure you have good credit from the start.

How to Build Credit Score Fast

Many people want to know how long does it take to build credit. The good news is that it doesn't take that long to establish credit. According to Experian, it takes approximately three to six months of good credit history to establish a credit score. During this time, you will need to make sure you are paying your bills on time because this will be reflected on your credit report. Making late payments and acquiring debt is one of the quickest ways to make your credit suffer.

≤639

Poor

640-679

Fair

680-719

Good

≥720

Excellent

How to Check Your Credit Scores and Reports

There are ways to check your credit scores and reports, but here are a few things you want to keep in mind. In some cases, checking your credit report can negatively affect your credit score. This is because all hard inquiries will show up on your credit report and this can drop your score.

When you apply for a loan, many lenders or banks will do a soft credit pull on you. These do not show up on your credit report and will not negatively affect your score. On the other hand, if you sign a loan or agree to one with a company, the lender will do a hard credit to verify your credit information. It's best to check with your credit lender to see whether or not they will check your score when determining your eligibility for a loan, especially if you are trying to boost your score.

Many credit companies will offer to check your credit score for free. Others will charge a fee. Some credit service companies will offer you a free credit report and then charge for every credit report thereafter. Many of these credit service companies come with a catch. They want you to check your credit score so that you sign up with their services. If this is not your intent, then find another way to check your credit score for free.

How to Build Credit With a Credit Card

There are credit cards to build credit with no credit. You just have to find them. Here are some suggestions for how to build credit with a credit card. The first thing you'll need to do is apply for a credit card or a starter card. After you receive your credit card, and will want to make sure that you make all of your monthly payments on time. This is the best way to build credit.

Another option is to open a line of credit and do not use it. Even if you do not use your credit card, you will still have information reported to the credit bureaus. as long as your account is active and current, this means that you will have an open line of credit. Keep in mind that taking out a credit card and not using it will mean that it may take longer to build your credit.

Your final option is to become an authorized user on a parent or another family member or friend’s account. This is also known as piggybacking credit. As an authorized user on a credit account, you have permission to use that credit card. However, the primary cardholder will be in someone else’s name, such as a parent or another family member.

As long as you make monthly payments on time, this activity will be reported to the three credit reporting bureaus. This is a good way to boost your credit without having to take out a line of credit yourself. Keep in mind that some banks or lenders do not report the activity of authorized users. You will want to make sure that your activity is reported before signing on to someone else's account if your goal is to boost your credit score.

How to Build Credit Without a Credit Card

How do you build credit without a credit card? It's not easy, but it can be done. You need to start somewhere when it comes to building credit and not everyone has a credit card to start off with. Here are some suggestions for how to build credit without a credit card. First, it's always a good idea to get into the habit of paying your bills on time. This includes making on time payments for your utility bills, car note, and other finances. Practicing this behavior will help you when you get a credit card.

As mentioned above, you can become an authorized user on an account. This is a good way to establish credit without a credit card. You can also obtain a credit builder loan. These are loans that are offered by banks, credit unions, and other companies that are designed to help you build credit. It works by allowing you to borrow a small amount of money up around $1,000 or less. This money is put into a CD or a savings account. From here, you will make a small amount of monthly payments until the loan is paid off.

Taking out student loans is also another way to help you build credit. Student loans show up on your credit report. This means that every time you make an on-time monthly payment, this activity is reported. For many people, student loans are a guaranteed way to boost credit because so many people have them. You can also boost your credit without a credit card by taking out an auto loan or a mortgage. These loans can be obtained without a credit. You will need to make sure you pay them on time to boost your credit score.

What to Do If You Don't Have a Credit Score

The best way to build credit is to make timely payments on an existing credit account. But if you don't have a credit score or have never taken out a line of credit, then you'll need to find other ways to build your credit. Many banks and other lenders consider having no credit score to be a bad thing. But having no credit score should not disqualify you from borrowing money if you need it.

Not having a credit score means that you are credit invisible. Because everyone needs credit at some point in their life, it's a good idea to start practicing good habits sooner rather than later. It may take some time to build credit once you get started and you never know when a good credit score will come in handy.It's a good idea to use every opportunity you get to build your credit. This includes making on-time monthly payments with your student loan, car payment, or mortgage. Eventually, this good activity we'll build up and help you achieve a good credit score.

Habits Which Help to Build a Credit

If you want to know how to build credit fast, then you’ll need to develop the following habits. Some research suggests that it takes as long as two weeks to make a daily activity become a habit. Some of these habits you can practice daily. Others may only apply twice a month or so. Use the following suggestions as a guideline to make adjustments in your financial habits to secure the best possible credit score.

1

Pick the Right Credit Card Company

Lots of credit card companies will compete for your business. This can make it hard to know which one to go with. The best thing you can do is to research all of your possible options and take your time when making a decision. Look for a credit card company that is best suited for your needs. Most people go with the company who offers the lowest rates. You will also want to consider things like accessibility.

Lots of companies offer 24/7 access to your online portal so you can make payments and communicate with the company. Do you want a credit card company that is completely online or do you want to visit them in person? There are many online platforms that allow you to put in your information and they will match you to lenders. This is a great way to reduce some of the time it takes to research your options. While not all lenders offer credit cards, this can be a good place to start to weigh your options.

2

Let Your Accounts Age

Letting your account age is a good way to build credit history. This is an important part of building your credit score. Lenders like to see that you have a long history of making timely payments. It’s one way of showing that you’re a reliable person. The longer your credit history, the better your credit score will be.

Some lenders will not extend you credit unless you have at least two years of credit history build up. Letting your accounts age means taking out a credit card and keeping your account open for as long as possible while continuing to make payments on time. Keep in mind that it can take as long as six months to build credit. This means you will want to keep your accounts open for much longer than this.

3

Monitor Your Score Regularly

It’s hard to build your credit if you don’t know what your score is. Keep up on your credit score by monitoring it regularly. Some companies will do this for you for free. You might also be able to find a company who will send you a monthly credit report for your viewing. Checking your score regularly is a good way to see how your recent behavior affects your credit. Remember that you are eligible to receive one free credit report per year. All other copies after this will cost you a fee. Also remember that checking your credit score may lower it. So it’s a good idea to make sure pulling your credit score won’t affect it beforehand.

4

Pay on Time or Before

Paying your bills on time is the best way to build your credit. Every time you make an on-time payment, it positively contributes to your credit score. Over time, having a history of timely payments will boost your credit score. It's a good idea to get into the habit of paying every single bill on time each month. You can even make payments beforehand to prevent late fees or the possibility that you might not pay on time. Creditors and lenders like to see that you are responsible enough make timely payments.

Making payments before they are due is another way to showcase your responsibilities as a credit holder. You can make sure that you never forget a payment Again by setting reminders on your phone. Some companies will even send push notifications to your phone when a payment is due to avoid late payments. If you often forget when a payment is due, then look for a credit card company who will send you notifications or reminders when your payment is due.

5

Keep Your Balances Low

Keeping your balance is low is a good way to make sure you can afford them. If you're just starting out, try not to make any major purchases until you know that you can pay them off. You can build your credit by paying off small monthly payments just as well as you can with large payments. Because of this, it's a good idea to ensure that you can pay on time by keeping your payment small. Remember that the best way to boost your credit is to make payments on time regardless of the amount.

6

Don’t Apply for Credit Often

If you want to know how to build credit score fast, then you'll need to learn to take your time. Everytime you apply for a credit card, there is a chance that the credit card company will do a hard credit pull on you. This is because the credit card company will want to see your credit score and past credit history. These inquiries will show up on your credit report and can negatively affect your score. For this reason, it’s a good idea not to apply for credit too often. You can also make sure the company only does a soft credit pull on you, which does not show up on your report or affect your score.

Every time you apply for credit, it shows up on your credit report, which can negatively affect your score. This is because most companies will do a hard credit pull to verify your credit score every time you apply for credit. Having too many inquiries on your credit report can negatively affect your score. Check to make sure the company you are applying with will do a soft pull on you before applying. This is a good way to make sure you don't have too many inquiries on your credit report. It's also a good idea to get into the habit of applying for credit only when you need it. Borrowing too much money or taking out too many lines of credit can cause you to fall into debt.

Check Your Credit Report For Errors

Sometimes mistakes can occur on your credit report that negatively affect your score. It's a good idea to check your credit report early to make sure there are no mistakes on it. If you find a mistake, then you can contact one of the three credit reporting bureaus to see if they can have it removed. Hiring a credit repair service is a good way to have these mistakes removed from your credit report if you have many of them.

Disclaimer

CreditNervana promises to keep our information as accurate and up-to-date as possible. However, you should always consult a financial advisor for specific questions about personal or business finances and investment opportunities, especially if you are looking in your area. Working with a trained professional who is familiar with your case is a safe and guaranteed way to make the best investment decision possible. Please review our terms and conditions before making any decision based on the information we provide. Financial institutions are constantly changing. Because of this, it’s a good idea to cross check the information you read here with any company you are considering working with.

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