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The Best Ways to Build Credit Fast

The Best Ways to Build Credit Fast

Good credit is an important part of life and for those young adults who need student loans for college, their first car, or a new home, the lack of a credit history can be a problem. There are quick ways to build good credit and establish a positive credit history. Responsible financial habits, when established early, can ease the transition to adulthood and financial independence.

Here are the best ways to build a good credit score fast.

Why You Need To Build Credit

As a young adult or recent college graduate you may be wondering why it is important to build credit in your early 20’s. If you needed financial aid and student loans to get through college then you likely had your parents co-sign your debt, meaning the financial institution who issued your funds was willing to overlook your lack of credit history. However, as the real world looms and your parents are no longer offering you a financial cushion, getting credit can prove to be more challenging.

Due to the lack of financial education in the United States, many millennials who are just starting out in the world may not realize how crucial a good credit score history is to financial security and independence. Here are just a few ways your credit score is used and why you need to build your credit fast.

  • Credit Card Companies– Credit card issuers use your credit history to approve or decline applications. Once you are approved, a credit score can determine how high or low your interest rates are. Similarly, if you need more credit to purchase higher-priced items, you may need a credit limit increase.
  • Home Loans and Mortgages– These are likely the largest purchases you’ll ever make. The interest you pay on your mortgage will amount to hundreds of thousands of dollars, depending on where you live. Because of the amount of a home loan, a higher interest rate due to a low credit score or bad history can cost home buyers tens, if not hundreds, or even thousands more in interest payments.
  • Auto Loans– When buying a new or used car, most adults often finance their purchase. The final amount you pay for this depreciating asset should be as low as possible to help you divert extra cash to other activities that actually create wealth, such as investing. Your credit score and history may either earn you a no-interest loan or overburden you with higher monthly rates.
  • Getting A Job– Many employers check your credit score to determine your financial habits. The idea is that a financially responsible individual who manages his/her own finances well is likely to be a better employee.
  • Car Insurance Coverage– No one likes paying insurance premiums, yet auto insurance is mandatory in the United States. Furthermore, statisticians have found a positive relationship between people with high credit scores and safe driving. For this reason, the best car insurance companies in most U.S. states check your credit score to determine your insurance rates, offering a discount to drivers with strong credit.
  • Business Loans– Buying a business tends to be the surest way to financial independence in the United States. However, as a first-time business buyer most purchases require the cooperation of the Small Business Administration (SBA). SBA loans often require a sizable as well as a strong credit history to get approved. Having no or bad credit can be the difference between the ability to buy a business and being forced to pass up an incredible financial opportunity.

Now that you know why you should care about building up credit, let’s discuss how to actually do it!

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It Starts With Your Job

In order to build credit and establish a history, an individual must have a stable income and for most people that means getting and keeping a job. Whether the job is part or full time, an employment history is the first step to building credit.

It is important to remain employed at the same job for at least a year unless, in the case of students, the job is temporary or seasonal. Jumping from job to job causes your income to be unstable, making it difficult to get credit.

Open Bank Accounts

High school and college students can establish checking and savings accounts at local banks or credit unions. While having bank accounts will not improve your credit score, it will establish you as a customer and may make it easier to obtain credit through your financial institution.

It is also important to maintain the accounts in good standing since overdrafts can have a negative impact on your relationships with the bank. With a savings account and a decent income most people over age eighteen can obtain a secured credit card or loan.

Apply for Secured Credit Cards

Debit cards, which are issued with checking accounts, do not report to credit bureaus and will not build your credit history. A secured credit card has a credit limit equal to the amount in a savings account that is used to ensure the principal of the loan will be paid if the account holder defaults on the payments.

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These credit card companies make regular reports to credit agencies and can improve your credit score and establish a payment history. The money in the savings account that secures the card cannot be withdrawn unless the card is paid off and cancelled.

Like other credit cards, secured cards have monthly payments that must be made on time to build a good credit history. The best strategy may be to use the card only for essential monthly expenses and to pay it in full each month.

Interest rates on secured cards can be high and by paying the card off each month, cardholders avoid paying interest while their timely payments improve their credit score and build a good credit history.

Consider Secured Loans

The first loan many young adults obtain is a car loan which is a type of secured loan. The loan is secured by the value of the car and if the debtor does not make the payments when they are due, the lender repossesses the vehicle.

As a rule, banks and credit unions offer lower interest rates on car loans than finance companies. Plus, being a customer of the bank you get the loan from increases your chances of being approved.

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Paying off a car loan is a great way to build a credit history fast, but it is important to keep monthly payments affordable. Include the cost of full coverage car insurance when deciding how much you can spend on a new or used car. Lenders require full coverage as a condition of the loan.

Getting Unsecured Credit Cards

Once you have established a good payment history for about one year you can apply for unsecured credit cards. If you already have a relationship with a bank, you are more likely to be approved for unsecured credit through their credit department.

The credit limit on unsecured cards is based on your credit score, payment history, income, and outstanding debt. Just as with secured cards, it is important to pay these cards in full each month to show responsible spending habits.

Shop around before applying for a credit card. Different cards may have different interest rates and some have rewards programs that offer cash back on everyday purchases. You should also consider the fees that apply to the cards since some have annual fees while others may charge high transaction fees, especially for cash advances.

Choose a card that fits your spending and lifestyle habits. It may be better to apply for a card with a higher interest rate and a good rewards program if you intend to pay off the full balance every month.

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Automate Your Payments

If you forget to pay your bills on time it can hurt your credit history. Automating payments insures that all your bills get paid when they are due. There are two options for making automatic payments. You can either:

  • authorize your bank to release the funds from your checking account on receipt of an electronic bill, or
  • you can charge the payments to a credit card and pay off the credit card bill each month.

Using a credit card will improve your credit score and help build your credit history as you pay your regular monthly expenses.

Do Not Apply for Multiple Loans or Credit Cards

If you apply for several credit lines at once, it will have a negative impact on your credit score and can hurt your credit history. It is better to apply for one line of credit and allow some time between credit applications.

Each time a lending institution pulls your credit report, it lowers your credit score unless you are comparison shopping for a single loan (e.g. auto loan) and apply through all the lenders within a 30 day period. This would be considered a single inquiry for your credit report.

Instead of applying for new credit cards, request an increase of the credit limit on the cards you already use. Nearly one third of your credit score is based on the ratio of your available credit to your actual debt. If you have a high credit limit with a low debt balance, it raises your credit score.

Even if you do not plan to use the additional credit, it is smart to apply for the increase since it will improve your score and credit history.

Final Word

It usually takes between one and three years of good payment habits to establish a credit history. A good credit score can help young adults who are seeking full time employment and housing for the first time since employers and landlords often pull credit reports when considering applicants. If you build your credit history fast and early, you will have a good head start on your financial future.

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Gary Dekmezian

Entrepreneur

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Last Updated on January 21, 2020

How to Develop a Millionaire Mindset in 6 Simple Steps

How to Develop a Millionaire Mindset in 6 Simple Steps

We all like to dream about being financially wealthy. For most people though, it remains a dream and nothing more. Why is that?

It’s because most people don’t set their mind to achieving that goal. They might not be happy in their current situation but they’re comfortable – and comfort is one of the biggest enemies of growth.

How do you go about developing that millionaire mindset? By following these simple steps:

1. Focus On What You Want – And Take It!

So many people are too timid to admit they want something and go for it. When there is something that you want to accomplish don’t think “I could never actually do that”, think “I could do that and I WILL do that”.

Millionaires play to win, not to avoid defeat.

This doesn’t mean to have to become a selfish jerk. What it means is becoming more assertive and honest with yourself. You don’t have to grab off other people. There is a big pot of unclaimed gold in the middle of the table — why shouldn’t you be the one to claim it? You deserve it!

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2. Become Goal-Orientated

It’s almost impossible to achieve anything if you don’t set firm goals. Only lottery winners become millionaires overnight. By setting yourself attainable goals, you will get there eventually. Don’t try to get rich quickly — get rich slowly.

Let’s take the idea of making your first million dollars and expand on what kind of goals you might set to get there. Let’s also say you’re starting at a break-even position – you’re making enough to get by with a few luxuries, but nothing more.

Your goal for the first year can be having $10,000 in the bank within a year. It won’t be easy but it is doable. Next, you need to figure out the steps you need to take to achieve that goal.

Always look at ways to make growth before cutbacks. With that in mind, you might want to see if you can negotiate a pay rise with your boss, or if there’s another job out there that will pay better. You might be comfortable in your old job but remember, comfort stunts growth.

You may also have other skills outside of your workplace that you can monetize to boost your bank balance. Maybe you can design websites for people, at a fee of course, or make alterations to clothes.

If this is still not enough to make the money you need to save $10,000 in a year, then it’s time to look at cutbacks. Do you have a bunch of old junk that someone else might love? Sell it! Do you really need to spend $10 on your lunch everyday when you could make your own for a fraction of the cost?

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If you are to become a millionaire, you need to start accumulating money.

Here’re some tips to help you: How to Become Goal Oriented and Achieve More in Life

3. Don’t Spend Your Money – Invest It

The reason you need to accumulate money is for step three. Millionaires tend to be frugal people, and that’s because they know the true value of money is in investing. Being your own boss goes hand-in-hand with becoming a millionaire. You’ll want to quit your regular job at some point.

Stop working for your money and make your money work for you.

Rather than buying yourself a new iPad, that $500 could be used to invest in the stock market. Find the right shares (more on that later), and that money could easily double within a year.

There’s not just the stock market — there’s also property, and your own education.

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4. Never Stop Learning

The best thing you can invest in is yourself.

Once most people leave the education system, they think their learning days are over. Well theirs might be, but yours shouldn’t be. Successful people continually learn and adapt.

Billionaire Warren Buffet estimates that he read at least 100 books on investing before he turned twenty. Most people never read another book after they’ve left school. Who would you rather be?

Learn everything you can about how economics works, how the stocks markets work, how they trend.

Learn new skills. If you have an interest in it, learn everything you can about it. You’d be surprised at how often, seemingly useless skills, can become extremely useful in the right situation.

Start developing the habit of learning continuously: How to Create a Habit of Continuous Learning for a Better You

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5. Think Big

While I advise to start off with small goals, you absolutely should have a big goal in mind. If you have a business idea, then that is your ultimate goal – to start that business and make a success of it. If you want to invest your way to millions of dollars and do little work other than research, then that is your big goal.

There is no shame in not achieving a big goal. If you run a business and aim to make $1 million profit in a year and “only” make $200,000, then you’re still significantly ahead of most people.

Aim for the stars, if you fail you’ll still be over the moon.

6. Enjoy the Attention

To be successful, you have to be willing to promote yourself and enjoy the attention to a certain extent. Now the attention doesn’t need to be on yourself, it could be on your brand, but attention definitely attracts money.

Never be embarrassed to get your name out there. That means finding a spotlight and being brave enough to step right up underneath it.

If you run a business, try contacting the local papers. You’d be surprised at how amenable they often are to running a story about you and your business, and it’s all free publicity.

Above all, remember: You control your own destiny. Push hard enough for anything and you’ll get it.

More About Thinking Smart

Featured photo credit: Austin Distel via unsplash.com

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