The world is evolving rapidly day by day and unpredictability is becoming the new norm of this financially-driven world. Thus the importance of having solid financial stability is essential for all of us. One of the best markers of having strong financial stability is a good credit score. It's not just a number, it's your most powerful tool to unlock doors to better opportunities. The significance of credit score can be seen anywhere whether you are applying for a mortgage or seeking a car loan. However, sometimes odd situations arise and we are left with a less-than-ideal credit score. This is one of the main reasons for frustration and uncertainty.
But fear not! Your credit score can be recovered at such odd times. In this blog, we will explore the best ways to build credit fast, empowering you to take charge of your financial future. We have tried and tested these strategies and if you implement them wisely you can easily reclaim your ideal credit score in a very short time. The steps we are going to tell you will help you in improving any sort of issue related to your credit history.
From understanding your current situation to mastering the art of comeback we will cover everything and also provide you with proven actionable tips. We know that each individual has a unique credit journey but this guidance presented here will help you in any phase of your journey.
Understand Your Current Credit Situation
The first step in improving is understanding where you currently stand. The same rule applies to improving credit too. In the USA all three major credit bureaus provide copies of your credit report.
You can obtain these copies and attempt to study your credit, determine what causes your specific situation's low credit score, what elements are raising it, and whether a history of late payments exists. You can create a complete table and analyze your present situation. Some of the major contributors towards building credit fast are paying your payments on time, using different credit cards, having no interest in getting new credit, having old credit accounts, and constantly low balances on credit cards. Whereas the destructors of your credit score are high credit card balances and late payments.
Impact- Although this is more of your preliminary step, it is very crucial to have a thorough understanding of your current credit status.
Time to see progress - Immediately you won't see any changes in your credit score but it will lay the foundation for development over time.
Create a Budget
Once you have checked your current credit ratings. The next step is to stop the excess damage by inhibiting debt. It is one of the most significant contributors to having low credit scores. Thus, creating a budget becomes essential to get your finances back on track. For this, you can start by listing all sources of income and monthly expenses on paper. After this allocate a portion of your income to pay off the remaining debts. Once the budget is created we can move forward in your quest on how to build credit fast.
Impact- A budget lowers your risk of receiving bad credit, by ensuring regular timely payments and better money management.
Time to see progress - If you are consistent with your efforts then you can see visible results in a few months.
How fast it could work - Moderate
Pay Bills on Time
Paying bills on time is one of the most important factors for building credit fast.
Most lenders use FICO scores to judge your situation. If you look at the factors that are used for calculating the FICO score, you will find that the largest 35% share comes from payment history alone. It is the same with the VantageScore credit system too. These clearly define the importance of paying your residual bills on time.
One of the best ways to build credit and to stop paying late is by using an automated payment method linked directly to your bank account so that authorities can directly deduct the amount from your balance. And if you're not interested in paying directly you can ask your lender to rectify in case you have missed a payment. You won't be reported to the credit bureaus if you pay your remaining debts before 30 days. The later the payment the more it will affect the score.
Impact- Credit ratings are heavily influenced by payment history as paying bills on time demonstrates responsible credit behavior.
Time to see progress- Within a few months, timely payment habits can begin to raise your credit score.
How fast it could work- Moderate
Reduce Credit Card
No doubt credit cards are a great invention of the 21st century. But these have led us to spend more than our savings on useless items. The amount of credit utilization is one of the main factors responsible for lowering your credit score. If you have a high utilization of credit cards it signifies that you have trouble paying your borrowed money back. One of the best ways to build credit that you can use is to set up a credit alert to receive alerts via messages. Apart from this, asking your issuer for a higher credit limit can also help you in building credit fast. The debt avalanche method can also help significantly in improving your credit utilization ratio. In this method first, you will have to save money by spending minimum on other cards and use the saved money to pay it to the one card which is at the highest interest rate.
Stop inquiring about new credit
Inquiry in general is not wrong. But when you try to inquire constantly about ways to open a new credit account or for a new loan it reflects to the lender that you are in some kind of trouble right now and a risky option to give loans, thus your credit score drops significantly. Generally, two kinds of inquiries are made by users, one is a soft inquiry and the other one is a hard inquiry. Soft inquiry comprises checking your own credit score or asking any employee of yours to check the credits of your company, or other financial institutions checking your credit with whom you do your business. Whereas hard inquiry includes applying for a new credit card, mortgage or loan. These hard inquiries question your credibility. Thus try to avoid such inquiries they can affect your credit score adversely for a few months or even years. So one of the answers to your question on how to raise a credit score is by just minimizing hard inquiries.
Impact- When your credit card balance will reduce, your credit utilization ratio will get lower by itself. This factor will raise your credit score significantly
Time to see progress- It depends on how rapidly you pay your debts. On average, it may take a few months or longer.
How fast it could work- Moderate
Ask for higher credit limits
Making limited hard inquiries is not the only thing you can use to decrease your credit utilization ratio. You can also look forward to increasing your credit limit too for decreasing the credit utilization ratio. Ask your current lender for an increase in the limit of credit. If you have currently been promoted to a higher designation and your salary has increased then the chances of increment in credit limit increases. But keep in mind that repayment must be your priority. Do not get greedy with the new limit, you need to maintain your expenditures the same they used to happen before the increment. You should never charge anything which in future you won't be able to give back. Thus for building credit fast, you should ask for higher credit limits.
Impact- If you are keen up to maintain your current level of spending, then greater credit limits can enhance your credit utilization ratio.
Time to see progress- Once the increased limit has been reported to the credit bureaus you can see the effects of it within a few months.
How fast it could work- Moderate
Become an authorized user
Becoming an authorized user means adding to someone else's existing credit card account. Now the question may arise inside you: why would you do this? Let's understand the reason behind it. It depends on the account holder whether or not to give you access to his cards and payments after making you an authorized user of his account. This gives him the choice of adding you as just a dummy account holder without any consequences. Now once you become an authorized user on his account, all his card history will appear on your credit report. If you select a person with positive on-time payments, it will boost your credit score too. This method is also known as "credit piggybacking" and is one of the best ways to build credit fast.
Impact- If the original user has a solid account history, then it will raise your credit score on becoming an authorized user on his account.
Time to see progress- It takes a few months for the appearance of favorable account history on your credit report.
How fast it could work- Moderate
Keep old accounts open
History matters. One factor in calculating a credit score is the age of the credit. Here a well-maintained old account signifies that you have been an ideal borrower constantly for such a long time. This makes you more favorable in front of lenders. The majority of credit rating algorithms favor long-standing, mature credit accounts. Also, if you have always used only a small portion of your credit limit then this shows your stability to the lenders.
Thus if you have an old credit card with you, don't deactivate them as old credit history will also remain available in your credit report. Apart from this try to maintain an ideal account by paying money back on time and if you have a history of late payments then take action right from today and start paying your future dues on time. The late payments won't be removed, although doing so might improve your payment history moving ahead.
Impact- Keeping old accounts open extends your average credit history which improves your credit score.
Time to see progress- Beneficial effects are typically seen gradually over a period of time as the account ages.
How fast it could work- Slow.
Investigate your credit reports for errors
About 25% of Americans report errors in their credit reports. Due to these errors, it becomes very important to regularly review your credit reports. Common errors that occur often include fraudulent accounts and misreported payments. Who knows the only reason for your low credit score is happening because of an error. Once you have found an error you can write a dispute letter to the credit bureau with all the related documents attached.
Impact- By removing the inconsistencies from your credit record, you can potentially raise your credit score.
Time to see progress- It may take a few months depending on the complexities of the errors.
How fast it could work- Moderate
How credit scores are calculated?
All the tips we have mentioned above came from a thorough understanding of how credit scores are actually calculated. Knowing this by yourself can lead to new unique ways in which you can apply for building credit fast.
Every kind of credit score is determined by computer algorithms which are known as scoring models. In analysing your credit reports these algorithms consider various factors with different weights to get a credit score. Some of the common elements in calculating scores include:
All scoring models are basically prediction models which work on probability and try to guess the possibility of your paying money back by 90 days or more on a bill in the next 24 months. A higher credit score defines that you are less likely to pay your bills late. Some of the most famous scoring models are FICO and VantageScore, scoring models. Their generic credit scores' most recent iterations range from 300 to 850, and a number in the mid-600s or more is frequently regarded as an excellent credit score. It shouldn't come as a surprise that the actions you do to try and raise one score can assist raise all of your credit ratings given that various credit scores seek to predict the same outcome using the same underlying data. We have talked about the best ways available and tried our best to answer the age-old question of how to increase credit scores in simple ways.
You are on the right path if you are trying to improve your credit score. But improving your credit score will take time and it won't happen overnight. You need to keep patience to see results. Keep taking these small steps day by day regularly and you will end up with a good credit score. A good credit score can easily get worse overnight but when you build good habits which we mentioned above then your credit score becomes redundant. Continue keeping track of your credit by keeping an eye on your expenditures and paying off debts on time each month. And surely you will see better results in your attempts at building credit fast.
Frequently Asked Question
As long as you treat your loan responsibly, owning a car can boost your credit score. Over time, making timely and complete payments should raise your credit score. Apart from improving your credit score, it can improve your credit mix as well.
We can't put a specific time period for it because improvement in credit score depends on person to person. But on average, if you follow the above steps then you can see the results between 6 to 12 months of experimenting.
An example of a credit card that is backed by cash deposits you make is a secured credit card. These deposits act as collateral thus the issuer has security that his money will not get lost.