Published in: Credit Cards | Dec. 12, 2018
3 Simple Steps to Build Your Credit Fast
By: Lyle Daly
Trying to jump start your credit? Learn the most effective methods to build your credit fast.
I’m not the most patient person, so I know how frustrating it can be when you’re trying to build your credit from scratch. It can take years for your hard work to pay off with an excellent credit score, and if you mishandle your credit, you could end up right back at square one.
Some of the factors behind your credit score can only improve with time and responsible use of credit. But there are also proven methods that can bring positive results as quickly as possible.
Why you can trust me
Having a high credit score has been a focus of mine since early adulthood, because I wanted to qualify for any credit cards that interested me and so I wouldn’t need a cosigner for anything that required a credit check. Using the same methods I’m about to explain, I steadily increased my score until reaching the excellent range. Although my score can fluctuate a bit more than normal since I apply for credit cards often, it typically stays around 780 to 800.
Factors that determine your credit score
Before we get into building your credit, you’ll need to know how the credit bureaus calculate your score. The most widely used type of score is your FICO® Score, which is made up of these components:
- Payment history (35%) -- Whether your creditors report your payments as on-time or late.
- Credit utilization (30%) -- The amount of your available credit that you use.
- Length of credit history (15%) -- How long your credit accounts have been open.
- Types of credit used (10%) -- Using revolving credit and installment loans is better than only using one or the other.
- New credit inquiries (10%) -- Applying for new credit accounts.
So, a whopping 50% of your score is tied to factors that you can’t exactly improve overnight in payment history and length of credit history. Fortunately, there is a workaround to this.
The best way to build credit fast
Here’s the best way to build your credit fast -- ask someone with a high credit score to make you an authorized user on one of their credit card accounts.
Most people ask their parents, but a responsible uncle, cousin, or grandparent all do the trick just as well. There are even for-profit services that connect consumers looking to build their credit with high-credit consumers who don’t mind adding authorized users to their accounts, although I wouldn’t recommend going that route. The credit bureaus can often tell the difference between a legitimate authorized user account and an attempt to game the system.
Once you’re an authorized user on someone’s account, all that account’s activity gets reported on your credit history. Here’s what that means:
- Their on-time payments start counting for you, improving your payment history.
- That account’s history gets added to your credit file, which can improve your length of credit history.
- The available credit on that account gets added to your available credit, which can lower your credit utilization.
That’s 80% of your credit score that can improve thanks to an authorized user account.
The only catch is that certain banks don’t report authorized user accounts to the credit bureaus, so this method wouldn’t work in that case. Your credit score could also decrease if the account holder stopped paying their bill on time or used too much credit, but you can always remove authorized user accounts from your credit report if necessary.
3 ways to build credit on your own
Let’s say you’re truly starting from scratch, with no generous high-credit-score ally to lend you a helping hand. Even though you won’t be able to boost your score as quickly, you can make excellent progress within about six months. Here’s how:
1. Get a credit card
A credit card is a must for building your credit fast. If you already have an installment loan, such as student loans or a car loan, then a credit card will diversify your credit mix and provide an immediate boost to your score. If you don’t have an installment loan, then you’ll need a credit card to prove you can borrow and pay back money.
Although it’s harder to get a credit card when you’re building credit, secured credit cards are an option for just about anyone because you pay a security deposit when you get the card. If you’re in college, try looking for a student credit card.
2. Use your credit card every billing cycle -- but don't charge more than 20% of your credit limit
It’s important to use your credit card consistently to start accumulating a positive payment history. You also want to maintain a low credit utilization, though, especially since that’s the factor that can make the fastest impact on your credit score.
The guideline on credit utilization has always been to keep it at 30% or less, but it’s also well-known that lower is better. I recommend playing it safe by never going over 20%.
Since your first credit card will probably have a low credit limit, you’ll need to be even more careful about what you charge. If you have a card with a $100 credit limit, your balance shouldn’t go above $20. Just use the card to pay for something small, like Netflix or coffee.
3. Pay the full balance on time
Something many consumers don’t realize is that late payments will only count against you on your credit report when they’re at least 30 days late. A payment made 15 or 20 days late would still be considered an on-time payment to the credit bureaus.
That doesn’t mean you should be lackadaisical about when you pay your bill. Your card issuer doesn’t need to wait to charge you a late fee, so it’s smart to get into the habit of paying on time. To help avoid late payments, you could set up automatic payments, set a reminder in your calendar app of choice, or set up payment alerts with your card issuer.
By the way, don’t believe the credit myth that you need to carry a balance to improve your score. It’s not true and will only result in paying unnecessary interest, so pay your bill in full instead.
What not to do
Now let’s cover the typical roadblocks that could stop you from building your credit.
- Using too much credit -- This is one of those all-too-common credit mistakes that is terrible for your credit score. You may have a $100 or $500 credit limit, but that doesn’t mean you should charge anywhere near that amount.
- Applying for too many cards -- Each time you apply for a credit card, it has a minor impact on your score. When your credit file is just getting started, every little bit counts, so avoid applying for cards you’re unlikely to qualify for or trying to get a new card every few months.
- Closing your credit card -- When your credit score improves, you’ll qualify for more credit cards and may decide to apply for one with better benefits, such as cash back or rewards. Even if you get a new card, keeping your older one can be beneficial because it will continue adding to your available credit.
The road to excellent credit
It’s important to be realistic during the credit-building process. You’re not going to jump from no credit score to an 800 in months. It takes time to prove that you’re a responsible borrower.
The good news is that building credit can be a much faster process than rebuilding your credit. Starting from scratch means you don’t have any negative items holding you back. If you put the information above to use, your credit will make consistent, gradual improvements. A good credit score is certainly in reach within one year, and after that, an excellent score just requires you to keep doing what you’re doing.
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