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How to Build Good Credit Quickly

Building credit can seem like a paradox: You need a demonstrated history of on-time payments before lenders want to give you credit but you can’t display a demonstrated history of on-time payments if nobody will extend a line of credit to you. Fortunately, there are several ways to go about establishing credit history when you’re just starting out.

In this article, I will walk you through the process of establishing positive credit history and maintaining your score. Please continue reading for some of my top tips!


Get a Co-Signer for a Credit Card or Car Loan

If you have a parent or guardian with good credit, getting that person to co-sign for your first credit card or auto loan is a great option. Their score will help offset your lack of credit history and may greatly improve your odds of approval. Once you have demonstrated a history of on-time payments, you are much more likely to be able to qualify for a line of credit with favorable terms without a co-signer.


Apply for a Secured Credit Card

This option seems a little counterintuitive but it’s a means to an end. A secured credit card requires that you make a payment to your lender in the entire amount of your credit limit. The lender will hold on to your payment as collateral and will issue a credit card to you that can be used to demonstrate a consistent and positive payment history. It’s not ideal but if you don’t have a co-signer, this can be a good means to an end.


Use a Rent Reporting Service

A rent reporting service is a good option if you don’t have a co-signer or the funds to put down on a secured credit card. Service like this allow you to build positive credit history just by paying your rent on time. Something that you’re probably already doing. Two of the main services that offer rental history reporting are Rental Kharma and Pay Your Rent. The drawback to this option is that services like this typically charge a one time setup fee, in addition to a small monthly charge.


Consider an FHA Loan

If you are ready to buy a house and haven’t already managed to establish credit history, all is not lost. FHA loans are designed for first-time homebuyers and allow you the option to prove that you are a responsible prospective buyer by proving a history of on-time rental payments. FHA also offers the option of a significantly smaller down payment than a conventional 70/30 loan.

Now that I’ve provided a few options for establishing credit history, I want to touch on a few important tips for maintaining your score.


Continue to Make On-Time Payments

You have established your credit rating by making on-time payments with your first loan, credit card or other line of credit, Now, keep it up. Falling behind on payments can negatively impact your credit score. One late payment won’t necessarily send your score plummeting. But it certainly will not help it. The later your payments are, the more severely it impacts your rating. And payments that are 60-90+ days late can seriously damage your score. If you suspect you will be unable to make a payment before it is 30-days past due, the best thing you can do is proactively contact your lender and request an extension. You may be able to avoid a negative impact to your score if you set up a payment arrangement in advance. Payments less than 30 days do not have a bearing on your score.

Keep Your Credit Utilization Low

Just because lenders issue credit to you doesn’t mean that the credit bureau wants you to use it. Experts recommend keeping your utilization rate below 30%. So, if you have a $1,000 limit on a credit card, you should try to avoid carrying a balance of more than $300. Utilization does not apply to secured lines of credit like a home or auto loan.


As a side note: I recommend reserving credit cards only for emergencies once you have established credit history. Using them to make small purchases and paying the balance at the end of the month is a great way to build a positive credit rating. But when you carry a large balance from month-to-month, your cards will cost you a great deal in interest charges. And it can reflect negatively on your score if the balance is more than 30% of your available credit.


Avoid Closing too Many Accounts

Age of credit is a determining factor in your score. So, the longer an account has been open, the greater value it is to you. I’m not suggesting that you should keep a card with an annual fee open just to boost your score. But any cards with a favorable interest rate and no annual fee are good to keep around to establish a long and positive history. Making occasional purchases and paying the balance off at the end of the month should be enough to keep the account active.


Monitor Your Credit Score

Many people don’t know this. But according to some experts, as many as 79% of credit reports contain errors. For that reason, it is extremely important to monitor your score and make sure that your report does not contain inaccurate information that could negatively affect your rating. If it does have any inaccurate information, contact the credit bureau and ask to dispute the errors.

*PRO TIP* It’s best if you only dispute tow or three errors at a time, wait for the resolution, then dispute the rest. You can also dispute anything that you feel is negative on your credit report as well. By law, the creditor has to prove within a short time frame that what they are reporting is correct. Many companies will not do this in time and then, it has to be removed.

Related Content to your Credit Report and Credit Score:

Have you disputed anything in your credit report? What was the outcome?

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