How to Build Credit Fast
If you need to build credit fast -- or rebuild it after a financial fiasco -- you're in the right place.
You've probably heard that you need a long credit history (a trillion years, at least) and a whole slew of credit lines to have an "exceptional" credit score, which is 800-plus. Honestly, it does take a while to get an exceptional score, but right now, that shouldn't be your focus.
At this moment, your goal is to boost your credit as fast as you can. If you stick to a few rules, you will increase your credit score within the next few months.
The Basic FICO Facts
It can feel daunting to build your credit from scratch, but I promise you, it can be done. It just takes time and patience.
Here are the minimum requirements for a FICO score:
-- You need to have one account open for at least six months.
-- Your account needs to be reported to the credit bureaus within the past six months.
-- You need to make sure there's no sign that you're deceased.
OK, the last bullet point sounds a little comical, but there's a reason it's listed. If your account was shared with someone who died and who was reported as deceased, then this could affect your account. If possible, try to open an account in your own name.
With VantageScore, another consumer credit scoring model, you can generate a credit score with less than six months of credit history. But you have no control over which score a lender will request. There's always the chance you'll get lucky and your lender will use VantageScore. But be prepared for a six-month wait since 90% of lenders use FICO scores.
[Read: Best Secured Credit Cards.]
Ways to Build Credit Fast
Remember, you're looking for ways to break into the credit world, so don't worry about your low -- or nonexistent -- FICO score. The goal right now is to take steps to remedy your credit situation.
Here are a few ideas to get you started:
Get a secured credit card. With these cards, you make a security deposit, which often becomes your credit limit. You get a credit card that looks just like an unsecured credit card. As long as the issuer reports to the bureaus and you use the card responsibly, you'll build a good credit history.
These cards are fairly easy to get, but if you're rebuilding your credit and you have a lot of negative items on your credit report, it's possible to get turned down. If this happens, there are a few decent secured cards that don't do credit checks. But be sure you read the fine print, because there are also predatory lenders out there who target consumers in your situation.
Apply for a credit-builder loan. If you're uneasy about getting a secured credit card, then a credit-builder loan is a good option. Your score won't matter. But you do have to show proof of income so that you can make payments.
Here's how it works: You apply for a loan (with payments you can afford), and when approved, you deposit the amount you "borrowed" into a savings account. You then make monthly payments until you've paid off the amount. (There are variations in which you don't have to make a deposit.)
When it's paid off, you get your deposit back, plus a little interest. These loans are more likely to be offered by credit unions and local banks, so shop around and find a loan that works with your budget.
[Read: Best Starter Credit Cards for Building Credit.]
Use someone else's credit. There are two ways to go here. You can get a co-signer or become an authorized user. If you get a co-signer, you'll be the joint account owner. This means you're both liable for any debt incurred on the account.
If you're an authorized user on someone's credit card, this means you are not liable for any debt that occurs. So, be very responsible with the credit card. If you max out the card, this has a negative impact on the account owner's credit score.
Whichever route you choose, be sure you select someone who has great credit and is trustworthy. And have a face-to-face meeting so the two of you can set dollar limits and agree on how the card can be used.
Look into getting credit for the rent you pay. I listed this option last because it isn't a strategy you should rely on exclusively to build credit fast. If you pay rent, then do check into this. But the value is unpredictable, so use this option in addition to one of the other credit-building suggestions listed above.
You may be able to get your rent to show up on your credit report, but that doesn't mean it will be considered when your credit score is calculated. There's still possible value, though. If a lender is reviewing your credit report, your excellent rental payment history will at least be seen.
It isn't possible to report your own rent payments to a credit bureau. So, ask your landlord if your payments are reported to a rent-reporting service, such as Experian RentBureau or PayYourRent.
There are several companies that report your rent payments to the bureaus. The cost varies, depending on if your landlord participates, so check what your monthly cost will be.
[Read: Best Credit Cards for Fair Credit.]
The Keys to an Exceptional Credit Score
To achieve a great credit score, you need to have a financial foundation in place and practice a few rules. Here's what you need to move up the credit score ladder:
-- Use a realistic budget and have a way to track your spending. If you don't set up limits, you'll overspend. But having a monthly dollar limit on dining out won't mean anything if you don't actually keep track of what you owe.
-- Pay your bills -- all of them -- on time. Payment history is 35% of your FICO score, so make it happen. Set up text reminders or automatic payments to stay on track.
-- Only use 10% of your credit limit. With a limit of $1,000, for instance, keep your balance less than $100. You've probably heard that 30% of your limit is OK. Well, it's OK if you want to wait longer to improve your score. To build your score fast, use the 10% rule. And that rule applies to each individual credit card as well as the overall total of your credit limits.
-- Don't open more than one credit card at a time. There's a myth that having lots of cards will boost your score fast. Resist the myth! Spread your applications out over several months. Each time you apply for a card, your score might drop around two to five points.
-- Start building an emergency fund. Life is unpredictable, and if you have a financial cushion, it gives a little protection to your cash flow as well as to your credit score.
-- Lastly, keep the faith. To build credit fast, set up your financial foundation and follow the rules above. It won't be long before you start seeing a healthy credit history and a rapidly improving credit score.
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