Building credit takes time and patience. With consistency towards your end goal, it can be as easy as ever.
The average time frame to build up momentum to tackle your credit score is 2 months, though it may take up to 2 years to finally build it from scratch. This is because you need to have at least one year of credit history and a few accounts with established payment history.
This guide will help you to speed up the process.
1. Plan On Paying Student Loans
Your payment history is the most crucial component of your credit score. To help protect your score from the adverse effects of a missed student loan payment, it’s crucial to understand the exact date when your loan payment is due. It’s easier if you make a calendar taking into consideration the unpaid amount, due date, details of loan servicer if necessary, and reviewing your budget to determine whether the resumed payments will stretch you financially.
2. Set Up Automatic Payments
On-time payments represent the greatest portion of your credit score.In order not to miss a monthly loan payment, put your bills on autopay. If your credit card issuer doesn’t have the autopay feature, include this in your calendar. The trick is to find a way to pay your bill at the same time every month.
3. Pay Down Balances
Another important component in your credit score is how much debt you carry in a loop compared to your total available credit. In order to improve your credit score, you need to keep your credit utilization below 30%. This is because the lower your income is, the more you’re going to be tempted to rely on credit for general expenditures. So if your credit limit is lower compared to your expenses, then ask for an increase.
4. Ask for a higher credit limit.
Even if you’re already spending below your credit limit, a higher limit is one of the easiest ways to boost your credit score since it will instantly lower your utilization.
5. Get a Credit-Builder Loan
Look into requesting a credit builder loan from a credit union. It is a form of loan installment which has fixed monthly payments and is generally designed to help improve poor credit score or if you have no credit history at all. Additional avenues for credit builder loans are community banks, online lenders and lending cycles like peer groups.
6. Consider a Secured Credit Card
Secured credit cards have higher interest rates, but the benefits are still worth it. Meanwhile you pay zero interest if you pay your balance in full on or before the due date every month. They offer no or low annual fees, and some offer reward programs which generally help build your credit faster.
7. Be cautious when Applying For Credit
Hard inquiry – which is when a lender looks at your credit report every time you apply for a line of credit – has a negative impact on your credit, so don’t apply for credit that you don’t actually want, or that you’re sure you’ll be rejected for. If it’s critical and you’re trying out options, do it in multiples as expressed in the next point.
8. Seek Out For Loans Within a Short Time Period
Apply for a few loans of the same type. such as a mortgage, car or personal loan to compare rates. Doing this will lead credit scorers to treat multiple hard inquiries of the same loan type made around the same time as one, reducing the negative effects on your credit score.
9. Build an Emergency Fund
Generally it is recommended to have about 3 – 6 months of living expenses saved in an emergency fund that can be used for hardships such as a job loss or medical emergencies/expenses. There are several online emergency fund calculator such as https://www.statefarm.com/simple-insights/financial/building-an-emergency-fund-calculate-how-much-to-save that can help identify what your monthly expenses are so you can determine what could be a good emergency fund amount.
10. Secure Your Personal Information to Avoid Fraud
Keep your personal data safe from being affected by identity theft. Fraudsters are always on the lookout, and you could be their next victim if you don’t protect your passwords, PINs, and physical cards safely. Being affected by fraud can mess up your credit card so badly. It is recommended to use a password manager to create and store unique passwords and avoid making financial transactions on public Wi-Fi networks.
Rome wasn’t built in a day! To see gradual improvement in your credit score, patience is the prime requirement. Stick to this conscientious financial behavior and you will be seeing small improvements very quickly, leading you to join the ranks of the highest credit score.