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However, there are effective ways to build credit and they don’t necessarily take long. You can have that new dream car or home in less than a couple of months by following these effective methods!
While it might seem laughingly obvious, getting a good job that pays well is literally the first step in being financially responsible. The next step is to keep the job and ensure that you have a regular flow of income. Most credit bureaus want to know that you get paid a regular salary so that you can pay back your credit balances with little hassle. If you’re new to credit then it helps to show that you have had regular income and are taking care of your finances for a minimum period of six months.
It is a good habit to pay your utility bills such as electricity, internet and phone bills on time. While most people believe that credit bureaus don’t necessarily look for your domestic financial transactions, having an active bank account with deposits and withdrawals made regularly and especially in paying bills shows that you are a responsible individual capable of taking care of your finances.
If you already have a credit card then make sure you pay your monthly installments on time. If you are unable to pay the full amount at once then make smaller payments more frequently until your balance is significantly lowered. Some experts say that this improves your credit score, thereby increasing your chances to avail (perhaps a higher) credit next time. You can call the customer service center of your credit company and find out when they report to the credit bureaus — in most cases they do so once a month. Paying off your balance, whether once in full or multiple times in small amounts, keeps it at a desirably low level to get a better credit score.
Once you have been sanctioned ‘unsecured’ credit, which means that the credit issuer
has no guarantee that you will pay back the loaned amount, it is safer and advisable to use your credit card minimally. It is shown that people with good FICO scores or credit scores utilize their credit less than 20%. This is a realistic figure because if you could really be liquid on cash all the time then you wouldn’t need credit at all. In some cases, it might be okay to use 30%-35% of your credit limit as long as you’re paying off your balances regularly. What looks really bad for you credit assessment is when you max out on your credit limit or when you have pending bills that increases your balance above 50%-60%.
In the most urgent scenarios, or if your credit limit is really low, you could ask for an increase on your credit limit that improves your credit utilization ratio i.e. the balance of amount you used and owe the company over the maximum available credit.
One of the fastest ways to build credit or to work towards a good credit score is to become an authorized user on someone else’s credit card. This means that you will be able to use the card of your friend, spouse or family member but are not legally obliged to pay back either the credit company or your friend/family member. However, if you are required to pay back your friend/family member then do so on time (even if you’re not legally obliged) and do not take it for granted.
Another similar method is to find your friend/family member who already has a good credit score and get them to cosign an application for your credit. If their credit score is much better than yours then they will be the primary and you will end up cosigning the loan or credit. However, debt of the loan will appear on both your credit reports and you are both required to make the payments. Since all information related to the loan and its repayments will appear on both your reports, you benefit by being able to build credit.
Whether you are new to credit or not, in order to build credit you can consider taking a credit builder loan which helps to establish a history of repayment – it will show that you can make payments responsibly and on time. It will also illustrate to the credit bureaus a mixture of credit types i.e. you are responsible in repaying loans as well as credit card installments.
It is like a forced savings plan where you pay monthly installments and are able to access the sum of money at the end of the loan period. Here the loan money offered itself acts as the collateral against your monthly installments. This type of loan shows that you can make payments on time and for a relevant time period.
Working to build on your credit is a good practice in the journey towards becoming financially responsible. While there are several methods to improve your credit score or start building on your credit if do not have any, some strategies can help to speed up the process. For instance you may want to buy a car or a home in less than a month or two. In such a scenario, the above mentioned strategies of cosigning a loan application or using your friend/family member’s credit score is a quick and easy method to avail credit.