Your credit history says a lot about you. In fact, it is one of the major factors in a loan application. Without a credit score, many lenders will not talk to you. Yes, some may allow non-traditional credit, which is things like insurance or rent payments, but not all do. In order to secure the lowest interest rates and best programs, you need to build credit. Luckily, there are a few ways you can make this happen quickly.
How Many Tradelines do you Need?
Technically, you only need one tradeline reporting for at least six months in order to have a credit score. That usually is not enough for mortgage lenders, though. Try shooting for at least 4 accounts with a positive history. This gives lenders a good idea of your payment patterns and ability to manage your finances. At least 4 tradelines with a good history is a good way to build up a good credit score faster too.
Check for Errors to Build Credit
It happens to people every day – a credit report contains erroneous items. Before you apply for a mortgage, consider requesting your free credit report from at least one of the three bureaus. You are eligible to receive a free report from each bureau annually. You can request them all at once or spread it out over the year so you are regularly checking your credit. Either way, go over each account and the information reported about it. Make sure the information is accurate. You should report any incorrect information to the appropriate bureau. This will help increase your score right away. Make sure to also take note of any accounts not reporting on your credit report as this can happen too. If it does, contact the company that should be reporting directly so they can fix the situation. Remember, though, not every company reports to the bureaus.
Open a Secured Credit Card
If you do not have any established credit, it may be hard to get that first approval. A secured credit card is one of the easiest to get. Your credit limit is equal to the cash deposit you put down. For example, if you obtain a $500 credit line, you must pay the credit card company $500. They hold the money in an account. If you do not pay your bill, they take it from your cash deposit. Rather than letting that happen, though, pay your bill on time. If you can pay it in full, you will help your credit score even more. This is just a temporary solution, though. Once you close the secured card, you will receive your deposit back if you did not dip into it. Use the secured card for around 12 months and then close it once you established your credit and get approved for another type of credit.
Be an Authorized User
Certain credit cards report authorized users to the credit bureaus. This is like the best of both worlds. You get the credit for timely payments and proper use of credit, but you are not legally liable for the card should the cardholder default. Keep in mind, not every credit card company reports authorized users to the credit bureau. A quick phone call to the desired card will let you know if they do. Don’t bother becoming an authorized user on those accounts where the company does not report.
Make More Frequent Payments
Even when you pay your credit card off in full, if the credit card company reports payments at a time before you make your payment, your credit report may be inaccurate. If a lender sees that you used the full balance available on your credit card, they may decline you for a loan. It may also ruin your credit score. Making payments at least twice a month will give you a better chance at having accurate information reported to the bureaus. This will help you build good credit quicker.
Keep Your Accounts Open
With the exception of secured credit cards, you should keep your accounts open as long as possible. A large part of your credit score is the age of your accounts. If you keep closing accounts you no longer use, the average age of your accounts constantly decreases. This only hurts your credit score and does not help you build credit. Keep the accounts open, but do not use them. You should always have one or two accounts you use regularly to show lenders a regular payment pattern, but using too many accounts can look like you are financially irresponsible. It is a fine line you must walk to balance the credit out.
Don’t Pay Old Collections
This may sound counterintuitive. Shouldn’t you pay collections off so they go off your credit report? In some cases, yes, but not many. It depends on the age of the collection. Those that are older than 24 months should be left alone. If you drudge up an old collection it will become “active” on your credit report again. This can hurt your credit score. However, if it is less than 2 years old, go ahead and pay it as it will have a direct positive impact on your credit score.
It takes constant work to build credit quickly. It can be done with the right steps, though. Always make sure you pay your bills on time and never overextend your credit. Only charge what you can afford to pay off in full. If you cannot pay the balance in full, pay as much as possible each month. Don’t go overboard with applying for new credit all at once, either. Inquiries can harm your credit score. Make sure when you apply for a credit card or loan that you wait a while before applying for another. Too many inquiries serve as a red flag to potential borrowers.
If you want to build credit quickly, try these steps and stay diligent in your efforts. Within a few months, you should be able to establish a positive credit history for yourself. This should increase your chances of loan approval.