The Student’s Guide on How to Build Credit Fast
Whether you’re thinking about how to build credit fast or applying for a mortgage, you’ll need solid credit to get approved and get a low-interest rate. Even if you’re just looking for a job or department, having a low credit profile, which means you don’t have enough credit history of generating a credit score, can prevent you from outperforming other applicants in the process.
Credit ratings are also used when you need to borrow only from banks. A low credit score may mean that insurance companies, phone service providers, and other companies charge you higher or additional fees.
Creating a good credit score can be a challenge, especially if you’re just starting out, or your credit history is minimal. Unfortunately, many of our clients face this problem when they move abroad to seek new opportunities in another country and need to settle.
However, there are good ways you can build a good credit history from scratch. While it may take time, your efforts will show banks, owners, and potential employers that you are a good prospect.
What Is Credit?
Credit is borrowed money that you must pay back, usually with interest. If you need to make large purchases and do not have enough cash, credit can help you achieve your goal and pay for the purchase in installments.
There are two types of credit: installment and revolving.
Installment credit is a loan in which you pay a fee each month, and there is a payment period established at the beginning. Most loans, including mortgages, auto loans, student loans, and personal loans, are examples of installment credit.
Revolving credit allows you to use a line of credit up to a certain limit, pay it off, and reuse it. There is normally a minimum monthly payment, but there is no set payment term. Credit cards, home equity lines of credit, and personal lines of credit are revolving or revolving forms of credit.
As you use installment or rotating credit frequently and responsibly, you establish a credit history, which is recorded in your credit reports.
Ways To Build Credit Fast
Now that you know what constitutes your credit score, it’s easier to know what you need to do to take the next step and establish good credit habits. Here are some things you can follow to achieve that goal.
Access the credit
It is not easy to get approved for a credit account without a credit history, but it is not impossible. Here are some options to consider:
Student Credit Cards
If you are a college student, a student credit card is a great way to start generating credit. These cards are not insured, which means you don’t need a security deposit to be approved. In addition, some offer rewards every time you use the card.
Secure Credit Cards
If you’re not a college student or can’t get approved for a student credit card, a secured credit card is a good alternative. The main drawback of these credit cards is that, to be approved, they require a security deposit that is generally the same amount as the credit limit. In everything else, they work the same way as conventional credit cards.
Be an Authorized User
If you are looking to build credit quickly or do not want your own credit card, consider asking a trusted family member to add you as an authorized user on one of their credit cards.
As an authorized user, you will get a card attached to your account and all account history will be added to your credit report. However, you will not be legally responsible for making payments. This is only a good idea if your family member has a perfect payment history on the account and keeps their balance relatively low.
Credit Loan to Generate
If you want to avoid credit cards altogether, some companies offer what is called a credit loan to generate to help establish a credit history. The difference between this type of loan and, for example, a personal or car loan is that you do not get any money when the loan is approved.
Instead, the company will place the loan funds in a savings account or certificate of deposit. Once you have finished making the interest payments, you will receive the loan amount.
It is important to note that your rent and utility payments generally do not help you improve your credit. However, if you stop doing so, the owner or utility company may send your account for collection, which will harm your credit score.
Make Timely Payments
Every time you get a credit card or credit loan to generate, it is important that you make timely payments every month.
To make things easier, consider setting up automatic payments to come out of your checking account. Thus, you don’t need to remember to make payments every month. The only thing you will have to make sure of is to always have enough cash in your checking account to avoid an invalid payment.
If you have a credit card, be sure to pay your balance in full each month before the due date, instead of just meeting the minimum payment. In this way, you can generate credit without having to pay interest.
Keep Balances Low On Your Credit Cards
If you decide to get a credit card, try to use it responsibly and sparingly at first. Generally, you will have a low credit limit, possibly a few hundred dollars, so you want to keep your credit utilization rate at a reasonable level.
However, over time, you can request an increase in your line of credit or get approved for a credit card that offers an upper limit.
Access Your Credit Scores
As you develop your credit, it is crucial to know where you are. If you have a credit card, the company that issued the card can offer you free access to your FICO credit score. You can also get access from Discover Credit Scorecard.
You can also access your VantageScore through free sites like Credit Karma and Credit Sesame.
Once you have access, you can periodically track your score. These services also usually show you if something hurts your score and how to choose a credit card to deal with it. Also, note that these credit check services may not have a recorded score for you. However, once you’ve used the credit for a few months, check back. In addition, take out one of the best loans for bad credit, to improve your overall score.