Build credit profile may seem like an impossible endeavor when you’re just beginning, but it’s easier than most people think. It will require a basic understanding of credit and some patience, but it can be done quickly with good financial habits. You can follow these steps to help you build a good credit score in just a few months.
Start by Paying Your Bills on Time
The first step in any credit-building strategy is to make sure you’re paying your monthly bills on time. This includes everything from rent and utilities to making loan and credit card payments on time. Even though a regular monthly bill, such as your energy bill, might not help your credit, a late payment will show up on your credit report and have negative results on your score. For that reason, you should make sure your payments are made on time or early. You should set notifications on your phone to notify you in advance when a bill is coming up to help you plan for it. Keeping up with your bills will also help you establish a good repayment history. When a lender looks at your report and sees that you have a history of making your payments on time, they will view you as a good risk.
Boost Your Credit Utilization Score
Most people are unfamiliar with credit utilization and don’t know that it significantly impacts their credit score. Simply, this is the frequency with which you use your credit. Poor credit utilization occurs when you make several charges per month, building up the debt that you accumulate. However, credit utilization also works in a positive way when you make micropayments to your creditors. In addition to making the minimum required payment each month, try to submit a few extra payments within each month. They don’t have to be large payments, but you should try to make them consistently. This will help you pay down your debt as you create a positive credit utilization pattern.
Use Credit to Build Credit
As you start out, you may need a parent to co-sign on a credit card or personal loan with you, but this is a positive step towards building credit. You can find a no interest credit card or secured loan that’s designed to help you build credit. These are lending options that require a down payment that will be used to back the loan amount or credit card limit. Typically, the amount you deposit is around $200, and that will be the amount for which you will be approved for your loan or credit limit. As you make payments on the amounts you borrow or charge, your credit score will be positively impacted. In some cases, a good credit score can be built in just a few months.
Keep a Positive Debt to Credit Ratio
As you become eligible for unsecured credit, you can still work towards building a better credit score by watching how much you charge. Your debt to credit ratio is another factor lenders will consider in determining your eligibility for a loan or new credit card. This means they will look at how much credit card debt you have in relation to the total amount of credit available to you. For instance, you might have three cards, each with a $500 limit. This means you have $1,500 of available credit. If you have $300 charged to each card, you have a total debt of $1,200. This would be considered a poor debt to credit ratio. Ideally, you should only use 30% of your available credit at any single time. If you have $1,500 in available credit, the most you should ever charge is $450 total. Having more than that charged to your accounts will result in a poor debt to credit ratio, and that can adversely affect your credit rating.
You can also help yourself by taking a personal finance course online or at your local community college. This will teach you the basic concepts you’ll need to manage your finances efficiently. You’ll learn how to use credit to build more credit, ensuring you can get approved for a home or auto loan when the time comes. Since so much in our lives is dependent upon good credit, taking these steps will help you build a solid financial foundation.
