Finance

5 Tips for Building Credit As Quickly As Possible

Building good credit is a long-term affair. It takes time to establish a financial history that deserves a good credit score.

However, there may be times that you find yourself in need of a boost now. When that’s the case, here are a few steps that you can take to boost your score in the short term.

1. Create a Solid Budget

Source: dataandfinance.com

Regardless of how soon you need better credit, you should always start with your budget. This gives you a good idea of what you’re working with. It helps you curb out-of-control spending. It can also show you where to cut costs and free up money to put toward your debt.

A solid budget is the bedrock of a good score. It can help you get your payment history on track — which accounts for 35% of your total credit score. You can also take your budgeting time to set up autopay and payment reminders as well, to help you perfect your payment history.

A good budget will also help you execute and maintain many of the other tips on this list in an effective manner.

2. Open a New Account

It may sound odd to open up a new account when you’re trying to boost your score. However, when done the right way, a new account can be a powerful way to boost your score.

This is because the new line of credit lowers your utilization ratio. That is the percentage of your available revolving credit that you’re currently using. In addition, a new line can diversify your credit mix, which is another factor that impacts your score.

By applying for a new credit card, you can help both your utilization ratio and your mix. Of course, if you have bad credit, it may be difficult to open a new line.

If that’s the case, look for a secure credit card like Chime. These are credit cards designed for tough situations. They only allow you to spend money that you already have and, at the worst, have a neutral effect on your score. However, if you open up a secure card, use it wisely, and pay it off on time, it can have a positive effect on your credit before long.

3. Work with Existing Credit Lines

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There are a couple of ways that you can work with existing credit lines, as well. This can be good, as the one downside of opening brand new lines is that it can reduce your average age, which can have a negative impact on your score.

First, you can request a higher limit on your open accounts. This can naturally boost your available revolving credit, bringing down your utilization ratio in the process. As long as you don’t spend that extra credit, this is a quick way to boost your score.

You can also try to become an authorized user on another person’s credit card. This allows you to piggyback off of their existing credit without opening up a new account of your own. Be warned, though, this does mean you’re asking the other person to risk their good credit for you. It’s a step that should never be taken lightly.

4. Reduce Your Debt

If you have a mountain of debt, you aren’t going to be able to pay it off tomorrow — and that’s okay. The goal here is to find ways to boost your score quickly. However, managing your debt can still play a part in that process.

While long-term plans to pay down debt are helpful, you can address your short-term credit by curbing any additional debt you may be accumulating. Once you’ve stopped adding to your debt wherever possible, you can begin to reduce your existing debt.

Start with revolving credit. Pay down cards wherever you can. You may even want to take out a personal loan to consolidate your debt and reduce the interest that you’re currently paying. Reducing your revolving credit lowers your utilization ratio.

From there, make plans to pay down other non-revolving debts as you can. You may also want to reach out to lenders to negotiate existing debts. For instance, if you have something that is about to go to collections, work with the lender to create a payment plan. This can help you avoid getting a derogatory mark on your report, which would hurt your score.

5. Review Your Credit Report

Source: self.inc

One of the simplest ways to improve your score in a short period of time is by reviewing your credit report. You can request a free copy of your report from all three of the major bureaus once each year.

Once you have your reports, review each one and look for two things. First, keep an eye out for errors. If you find that something has been reported incorrectly, it’s important that you contact the bureau and dispute the information. Sending a formal dispute letter can correct your report and instantly improve your credit.

The other thing to look out for is a derogatory mark. This is a negative mark on your report that could be generated due to things like:

  • Delinquent accounts;
  • Missed payments;
  • Foreclosures;
  • Repossessions;
  • Tax liens;

If you have a derogatory mark on your report, you can take steps to try to have it removed. Start by fixing the issue itself. If you defaulted on an account, pay the money back. If you missed a payment, make up the missing installment.

Once you’ve done that, write a note to the original lender. Ask them to remove the mark — something called a forgiveness letter or goodwill letter. Explain why you failed to come through on the financial responsibility. Then show them that you’ve fixed the issue and ask if they’re willing to remove the mark. If they will do so, it can improve your credit.

Building credit takes time. Even the “quick fix” tips above can take weeks or months to take effect. However, if you’re in need of a credit boost, there are ways to improve your score as quickly as possible. So review your current situation and start taking action as soon as you can in the name of better credit and a brighter financial future.

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