You shouldn’t just use credit cards to establish and build your credit scores.
On the contrary, we can’t promise that a sure way to build credit will give you the best results, but most people agree that using a mix of methods is better for your credit scores than just using credit cards.
So, let’s talk about five of the best ways to build credit, whether you’re starting from scratch or best crypto exchange, trying to fix a terrible score:
- Start a credit card account.
- Add yourself as a user to someone else’s credit card account.
- Use a loan to build your credit.
- Get a personal loan
- Add more types of payments that you regularly make to your credit report.
Find out how each way to build credit works.
Start a credit card account.
Credit cards are a great way to build credit because they give cardholders options no matter their credit situation.
If you have no credit, you can use a secured credit card or a credit card for students. If, on the other hand, you already have good credit, you might be able to get a good rewards card that lets you earn points or a little cash back on things you’d buy anyway.
Once you add a credit card to your wallet, your account activity will usually be sent to the three major credit bureaus, Equifax®, ExperianTM, and TransUnion®. As long as you pay your bills on time, your credit history will grow, and your age and credit score should rise.
The key to being successful is always to use your credit card intelligently. If you don’t, you might hurt yourself more than you help. If you rack up a lot of credit card debt or put bad things on your credit report, these mistakes can hurt you for years to come.
What’s good about it?
Because there are so many cards to choose from, it’s easy to find one that fits your needs.
You can build your credit and earn points or cashback simultaneously if you can get a rewards card.
- Depending on the card, many credit cards offer helpful perks like statement credits, warranty protection, travel insurance, and even access to airport lounges.
- Credit cards are helpful and can be used in many different ways.
- If your credit card gets lost, stolen, or hacked, there are many ways to protect yourself from fraud. (You can’t say the same thing about cash or even debit cards.)
What’s wrong with it?
- Getting an unsecured credit card might be challenging if you don’t have any credit history.
- Secured cards require a security deposit upfront, challenging if you don’t have much money.
- Many credit cards have annual fees, but many credit cards for people with no credit do not.
- If you already have credit cards, getting a new one will make the average age of your cards go down. This might hurt your credit scores just a little bit. But that’s true for any account, and if you want to build credit, you have to start somewhere. Urgent Loan Kaise Le.
How can you get the most out of your credit card?
Pay off your bill in full by the date it’s due: If you don’t keep a balance on your card past the date when your statement is due, you won’t ever have to pay interest.
Use the card only to buy things you would have purchased anyway: Don’t buy things you don’t need so that you can build credit or get rewards. Instead, use your card to buy something you need, like groceries or gas, and pay for them right away.
It doesn’t matter how often you use the card: As far as your payment history goes, it doesn’t matter if you use your card once every few months or every day. As long as you pay your bills on time, your credit scores can go up. Just use your card enough to keep it working.
Keep your debt to income ratio low: Your credit utilization is the ratio of the total amount you owe on your credit cards to the total amount you can borrow. Your credit score can go down if you use too much of your available credit.
Don’t try to get too many cards quickly: When you apply for a credit card, the company will do what is called a “hard inquiry” on your credit. This could hurt your credit scores, even if only for a short time. If you make too many hard inquiries in a short amount of time, it could hurt your credit scores more. Even if your credit scores are still good, too many hard inquiries could keep you from getting some new credit cards whose issuers are sensitive to inquiries.
Add yourself as a user to someone else’s credit card account.
Becoming an authorized user on a loved one’s credit card account is one of the best ways to build credit from scratch.
It’s easier to build credit because you don’t have to do much to make it work. The primary cardholder can add you to the account they already have. Then, depending on the card issuer’s policy, the payment history for that account will usually be sent to the major credit bureaus in your name. The primary cardholder is fully responsible for the account’s balance, so all you have to do is ask someone you trust for help. If you don’t use the card well, it could hurt your credit score.
You may have to meet some requirements to be an authorized user, but you shouldn’t have to go through a credit check. This makes it an excellent way to build credit.
How to manage the status of an authorized user?
There are a few ways to become an authorized user, so talk to the primary cardholder to determine which one makes the most sense.
One idea is to ask the issuer if you can have access to the account. To learn more about how credit cards work, you can use the card and pay it off quickly.
You could also ask the cardholder to remove the authorized user card. This way, the account activity will show up on your credit report without spending any money.
What’s good about it?
To become an authorized user, you don’t need a credit history.
Credit cards make it easy to pay quickly and quickly.
Authorized users often get most of the same benefits as the primary cardholder, which can add value, especially with higher-end cards.
What’s wrong with it?
You have to have a strong relationship with the person who gives you access to their credit card account. Both of you have to use the card responsibly for this strategy to work.
You may have to meet some requirements. For example, American Express won’t let you become an authorized user on someone else’s account if you’ve defaulted on an Amex debt in the past and haven’t paid it in full. Also, some credit card companies have age requirements, but most of the big ones keep them in the low teens.
Most card issuers tell the credit bureaus about the account history of authorized users. However, some do not.
How can an authorized user build credit?
Be careful about who you work with: Don’t use this method unless you’re sure that the primary cardholder will responsibly pay their bills.
Learn how to remove yourself from an account’s list of authorized users: Most of the time, you can withdraw your name from a report by calling the company that issued the credit card.
Don’t ever use the card: This is one of the best ways to build credit if you have trouble with money. Just let the primary cardholder use the account as usual, and that good behavior should give your credit history a solid base on which to grow or recover.
Use a loan to build your credit.
Like secured credit cards, credit builder loans are for people who don’t have a lot of credit or want to fix their credit.
They are very different from regular loans. Instead of giving you a lump sum of money that you have to pay back with interest, the bank gives you a loan and puts the money into an account, usually a savings account or a certificate of deposit. Then, you pay the lender a fixed amount every month.
During the life of the loan, your good payment history is reported to the credit bureaus.
Note that your credit builder loan size won’t affect how well it helps you build credit. Your history of making payments and how much of the loan you’ve paid off are the most important things here.
After you’ve paid off the predetermined amount of the credit builder loan in full, you’ll have access to the funds plus any interest they earned while they were sitting in savings. You won’t get back any interest or fees you paid to the lender.
In addition to the interest you pay on a credit builder loan, you will also have to pay an administrative or activation fee. But these fees are usually kept low and made clear before they happen.
What’s good about it?
- A credit builder loan can help you make a small emergency fund and build your credit simultaneously.
- Most loans can be made to fit your budget, so you don’t have to pay back more than you can afford.
- Most fees are low and fixed every month, making it easier to budget.
- There are many places to get credit builder loans, like online lenders and local credit unions.
When used with a credit card, credit builder loans are paid back over time can help make your credit report look more diverse.
What’s wrong with it?
- There are costs, but they are usually low and easy to pay.
- If you don’t pay your bills on time, it could hurt your credit.
- A credit builder loan will work if you can make payments on time, but that’s true of almost any way to improve your credit score.
- Some lenders and credit unions don’t report to all three credit bureaus.
- How can I use a credit builder loan to improve my credit?
- Compare prices: You can get credit-builder loans from credit unions and online lenders, and some may have better terms than others.
- Make a safety net for your money: You might want to add to your emergency fund the money you get back from the loan.
Get a loan for yourself.
Personal loans could indeed help you improve your credit score. But it can be hard to get a personal loan with a reasonable rate if you don’t have a good credit history.
Also, you should only get a loan if you need one to pay for a big purchase, like a car. Most of the time, it’s not a good idea to get a personal loan to build credit.
But if you need a loan for a good reason, paying it back on time is a great way to build a good payment history on your credit report. As with credit builder loans, adding a personal loan (also called an installment account) to your credit mix might positively affect your overall credit scores, depending on the combination of credit you already have.
The size of your loan doesn’t matter much when it comes to building credit, just like with credit builder loans, which are also installment loans.
What’s good about it?
- If you already need to buy something expensive, personal loans like auto loans can help you build your credit while you pay for it.
- If you have good credit, the rates on personal loans are often meager.
- When you have a credit card with an outstanding balance, your credit utilization could go up, which could cause your credit score to go down. Personal loans, also called installment accounts, don’t hurt your credit scores when they have more significant balances.
What’s wrong with it?
- Over time, interest fees could cost you a lot, especially if a lender gives you a higher rate because your credit is terrible.
- Personal loans can only get you into trouble if you aren’t sure you can pay them back on time and in full.
How can I use a personal loan to build my credit?
Compare prices: As with any loan, the terms from each lender will be different.
Other ways to build credit first: Once you’ve built up your credit with a secured credit card and a credit builder loan, a personal loan is a significant next step.
Add more types of payments that you regularly make to your credit report.
Like ExperianTM Boost and RentTrack, some services let you add rent payments, utility payments, and other recurring expenses to your credit reports.
Your credit score won’t always consider these payments, but sometimes they could help.
What’s good about it?
You’re already making the payments, so it doesn’t take much work.
Some services are free, like ExperianTM Boost.
What’s wrong with it?
- Adding recurring payments to your credit report might not help your credit scores that much (or at all).
- There are a lot of services that cost money that let you add recurring payments to your credit report.
- If you want your rent to be reported, your landlord will usually have to help you out at least a little bit.
How can I add payments that I regularly make to my credit report?
First, talk to your landlord: Your landlord may be willing to report your rent to the credit bureaus, so you don’t have to pay for a reporting service, or they may already be doing so.
Use Experian™ Boost: ExperianTM Boost is a free service that lets people link their bank accounts to add utility and phone bill payments to their credit reports. Remember that this will only show up on your ExperianTM credit report.
How To Build Credit Best Report?
The best way to improve your credit score will always depend on your specific financial situation, including your current credit score, income, etc.
But many people with no credit, bad credit, or thin credit files can benefit from using a variety of credit accounts responsibly.
For example, if you have the cash on hand, you might want to sign up for a secured credit card and a credit builder loan.
That will give you a lot of chances to pay on time, and the fact that you’re using two different kinds of credit will help you diversify your accounts, which is worth 10% of your FICO® Scores.
What are the best things to do to build credit?
No matter how you choose to build your credit, following best practices is essential if you want good results. Most of these rules are pretty easy to understand.
Always make payments on time. Your payment history is the essential part of your FICO® Scores, making up 35% of your FICO® Scores. Payments must be made on time, and late fees can hurt your credit score in a big way. Consider setting up automatic payments to ensure you’re never past due. Even if you can’t pay off your entire statement balance (which we almost always recommend, unless you have a card with a 0% introductory APR), make at least the minimum payment.
Use as little as possible: Credit utilization is the amount of money you owe compared to the amount you have available to borrow (credit cards only). It also makes up about 30% of your FICO® Scores, so a high utilization rate will usually hurt your credit scores.
If you don’t have to, don’t close your credit cards: When you complete a credit card, you might make your overall credit card utilization ratio on your credit reports go up by mistake. That could cause your credit score to drop right away.
You might also be setting yourself up for problems in the future since positive accounts that have been closed for 10 years are taken off your credit report. Once the account is taken off your credit report (in about a decade), it could lower your length of credit history, which is worth 15% of your FICO® Scores. You might also need to use your credit card every so often to keep it from being closed automatically.
Check your credit report often: By keeping an eye on your credit scores and information, you can track how your creditworthiness changes over time. It’s also a great way to make sure there are no mistakes on your credit report that could hurt you. You can use credit monitoring services or use AnnualCreditReport.com to check your credit report for free once a year. There are also many free ways to check your credit score, such as the tools your credit card company gives you.
You already have credit, and you want to build it up with a credit card that fits your lifestyle. Check out all of our favorite credit cards to find the right one for you.
Questions People Usually Ask
How do I get credit quickly?
Opening a credit card account is one of the fastest ways to build credit. Most of the time, it only takes a few minutes to apply for a credit card, and you should hear back from the credit card company right away with its decision. If you make all of your payments on time, your credit scores should improve.
When you use credit, you should also think about your credit utilization, which is how much of your total available credit you are using. For good credit scores, it’s essential to use credit only a little bit. Most of the time, lenders want to see a lower percentage.
But you could also build credit without a credit card or by becoming an authorized user on someone else’s credit account. Having your name on a credit account used responsibly can help your credit score.
How long does it take to get a good credit score?
Even though there is no clear answer, 6 months is usually enough time to build up enough of a credit history to affect your credit scores. But that time could be different if you’re starting or trying to rebuild your credit and other credit scoring models are used.
Make sure you pay all of your bills on time to keep your credit score from going down.
