Intro: How to Build Credit Fast
Whatever the reason, when credit scores fall, it can make your financial life more difficult. This is why many people are looking into how to build credit fast and wonder how long it takes to raise your credit score.
Though dramatic changes to your credit score over a short amount of time are rare, this article will cover some of the best ways to build credit quickly so that you’re able to secure a loan, buy a home, or open a new line of credit.
Your Credit Score and How It Impacts Your Ability to Build Credit Fast
Credit scores can be difficult to understand and difficult to manage. Many factors go into the calculation of this score, and it can be negatively affected for several reasons.
Carrying a large amount of debt on your credit cards makes the biggest difference in your credit score.
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Missing even one payment on your credit card can also take a toll on your credit score, since payment reliability is extremely important for creditors. Additionally, derogatory marks on your credit caused by bankruptcies or accounts in collections can cause your credit score to drop.
Why a Good Credit Score Matters
First, let’s dive into why having a high credit score is important.
Purchasing a home is a goal for many Americans, but it is difficult to achieve without a high credit score. Since the recession, banks are even more cautious to lend money for homes, since they are such a large investment.
Another common purchase that requires a credit check and a high credit score is a car. Though it is easier to qualify for an auto loan with bad credit than a home loan, often people with poor credit will have higher interest rates and require a larger down payment. This is why many people looking to purchase a car look into how to improve their credit score quickly prior to shopping around.
In addition to home and auto loans, any type of loan that you secure will require a credit check, and having a poor credit rating will mean that your interest rates will be higher to offset the risk of lending. If your credit score is low, it’s highly recommended that you look into how to build credit fast to avoid exorbitant rates.
Common Misconceptions About Credit Scores
It’s important to understand your credit score so that you can effectively learn and apply the best ways to build your credit. One misconception about credit scores is that once negative information is reported on your score, it is there forever. In fact, collection accounts, paid tax liens, and charge-offs will be reported for seven years. After that time, they will be automatically removed and will no longer impact your score.
Many people are also surprised by how long it takes to raise their credit score. There are many ways to increase your credit score quickly in small increments, but for large changes, it often takes more time. However, even if negative information stays on your report for seven years, it doesn’t mean it is weighted equally for all seven years. As data gets older, it loses predictive value, meaning that your score will improve slowly over time.
People also forget that the age of your open credit accounts can make a big difference on your credit score. As time goes on, your credit ages; the longer you’ve held your accounts, the better your score will be.
Credit-holders should always know their score, good or bad. It’s a common misconception that checking your credit score is difficult or could negatively affect your credit. On the contrary, under the Fair Credit Reporting Act, all Americans can get a free annual credit report at AnnualCreditReport.com. This site will show your credit reports from the three major bureaus – Experian, Equifax, and Trans Union.
Please note that these are credit reports, not credit scores. A credit report lists any loans, liens, bankruptcies, credit applications, loan payments, or other applicable credit information in your history from the last year. However, in order to learn your credit score, you must pay a service, like Experian.
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The Best Ways to Build Credit Fast
Now that you know why a high credit score is important and understand the common misconceptions about credit, let’s look into how to build credit fast if you find yourself with a less than desirable credit score.
Highlight Inconsistencies in Your Credit Report
A 2012 study by the Federal Trade Commission found that 1 in 5 consumers had an error on at least one of their credit reports. These errors can be devastating for your score and are especially frustrating if they are based on faulty information.
To spot these errors and build your credit score fast, request your report from the three major bureaus at least once a year. Check the following things to spot common errors:
- Your personal information – name, address, birthdate
- Your credit accounts are all reported
- Payment history is accurate
- Correct credit applications are included
- Items that have passed their seven-year history mark are no longer influencing your credit
After you’ve identified any inconsistencies, the next step is to try to determine why they are included. This could be because you’ve had credit information mixed with someone else with a similar name or because your identity has been stolen. Either situation could be a significant barrier to improving your credit score quickly.
The final step is to report the error with the credit reporting agencies by filing a dispute. You need to make a case for yourself, explain your real identity, and note why the information is inaccurate and is harming your credit score. The agency has thirty days to process a dispute. If the dispute is accepted, this is a step in the right direction to increasing your credit score.
Be Strategic about Opening Accounts
Besides highlighting report errors, another great way to build credit fast is to explore the option of becoming an authorized user on someone else’s credit card. This could be a partner, spouse, parent, or even friend. This is a good way to improve your credit score quickly if you aren’t able to open an account line on your own, while adding payment history to your credit line.
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If you pursue this option, ensure that the primary cardholder is willing to accept the risks of adding you as a user. You should also be extremely careful about how you use the card, since you don’t want to destroy your partner or family member’s credit.
If you are able to open your own line of credit, apply sparingly to avoid too many hard inquiries on your credit, which will dock your score. However, in some cases, there is a long-term benefit to improve your credit score fast by opening a few new lines to increase your available credit. Experts don’t recommend this option if you’re applying for a home or auto loan in the next year or so.
Hack the System by Reporting a Card Lost
A strange but perfectly legal way to build credit fast is to report one of your credit cards as lost. When this happens, your bank closes the account, creates a new account number, and then transfers over all of your history to that account, including the open date.
Effectively, this means that you now own two lines of credit with the same amount of history. This can make a big impact on improving your credit score quickly. In fact, credit age makes up about 15 percent of your credit score.
Keep in mind that this practice could be discouraged by some banks, and that different issuers report history in different ways – so this hack may not work in all cases.
Don’t discount the power of a good, old-fashioned conversation when trying to build your credit fast. If you were a loyal Visa customer prior to missing some payments because of unemployment or another financial situation, you could ask for a “good will adjustment” from the company.
Similarly, you can write a letter to the issuer asking them to erase debt that went to a collections agency by promising to pay it off in small increments. Simply asking your creditor can be one of the best ways to build credit.
Asking your issuer to increase your credit limit is another good way to build your credit fast. Let’s say you have a credit card with a limit of $1,500. If you spend up to $1,000 on the card, even if you pay off the balance before it’s due each month, this could still negatively impact your credit score. By asking to increase your credit limit, you will effectively be using less of your available credit. Be careful, though; only ask for a credit limit increase if you trust yourself not to get closer to this new limit. If you spend wisely and use some self-control, increasing your credit limit is a great way to improve your credit score quickly.
Do What You’re Supposed to
This may seem like a no-brainer, but paying your bills on time will be one of the single best things you can do to build your credit fast. Even if you’ve missed payments in the past, you can slowly rebuild your credit by being faithful. It’s never too late to set automatic payments so that you at least pay the minimum on time each month.
If possible, paying your bills twice a month is another great way to improve your credit score quickly. Using too much of your credit at any given time – even before the due date – never looks good. Consider paying mid-month and at the end of the month to cover your bases.
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Hire a Credit Repair Company
One way to build credit fast is to hire a credit repair company. Often, people hire a company to increase their credit score because doing it yourself can be time-consuming, expensive, and confusing.
Keep in mind that there are many dishonest companies out there who will make empty promises. Steer clear of companies that charge you upfront before completing work, guarantee you large hikes in your credit score overnight, or ask you to create an entirely new identity. The FTC actually prohibits credit repair companies from charging money before they perform the credit repair work or from making huge promises, so steer clear of these kinds of claims.
A fair, high-quality credit repair company will review your credit reports, collect supporting documentation from you, and help you substantiate your claim. The credit reporting bureaus then work directly with the credit repair company to improve your credit score fast by ensuring accuracy and completeness. Good quality companies will also explain their tactics in detail and will take the time to listen to your story fully.
It’s important to remember that though there are several ways to increase your credit quickly, and even though credit reporting agencies have thirty days to process claims, it can be difficult to predict exactly how long it takes to raise your credit score. The best thing you can do for your credit score is to monitor it continually and to make sure you have plenty of time to take steps to increase your credit score before seeking financing for a large purchase.
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