Building a solid credit history helps you in your overall financial planning. A good credit score enables you to get a credit card or loan for a home, vehicle, or business. You can only build a high credit score after a while. You need to take appropriate steps and have patience for that. So, here we will provide you with the best way to build credit.
We know that you are looking forward to improving your credit score as you struggled to qualify for a credit card or failed to get a loan, or you might have just moved to the USA. And you are looking for a quick fix to improve your credit score as early as possible. But there is no magic wand to fix it quickly.
Improving credit scores or building them from scratch is challenging, but you can achieve that with good financial habits. It will be helpful for your economic well-being in the future. So, take steps to improve your credit score as early as possible. This is what we are going to discuss in the post.
First, we will discuss some best ways to build credit with the help of credit cards; then, we will discuss the best ways to make credit for your business. We will also discuss how you can create your credit from scratch if you are 18 or have just moved to the USA.
After reading this post, you will have a clear idea about building a good credit history with the help of financial discipline. If you follow these steps, we assure you will soon qualify for a credit card, loan, or lease, whatever you require. So, let’s start with
What are the best ways to build credit with a credit card?
If you do not have a credit history or just moved to the USA, getting a credit card is the ideal step to building your credit history. An easy way to get your first credit card is by opting for a secure one.
You need to deposit some amount in the bank, and you get a credit limit for the amount you deposited. So, it will help you build your initial credit history.
If you are a student, you can request your parents or family members with a good credit history to make you an authorized user of credit cards. You can then start with small transactions and pay credit card bills on time.
Remember that your first credit card allows you to build a strong credit record to even avail of bigger loans in the future for a house or business. So always use credit cards wisely.
Remember the following points while spending on your first credit card to build a strong credit record.
- Having a credit line may give you a sense of free money. So it would tempt you to spend on things you cannot afford. So it can become an entry point for the debt trap. So always make a monthly budget and pay with your credit card accordingly.
- Instead of spending on multiple things, plan to pay your one or two bills with a credit card.
- It is best for the credit score to keep your credit utilization ratio below 10%. But ensure your credit utilization is at most 30% of your total credit limit.
- Do not close your old credit card account, even if you do not use it. A long credit history helps you build good credit. Likewise, avoid using multiple credit cards.
So, this is the best way to use a credit card to build a credit history. Now, we will discuss how you can improve your credit history by paying off your credit card.
5 Best ways to pay off credit cards to build credit
Paying off credit cards helps you reduce your debt burden and enables you to come out of the debt trap. But it would help if you had a proper strategy to pay off your credit card, as reducing an enormous debt takes time, and gradually, it will improve your credit score.
So here are five ways to do that,
- If you have multiple credit cards, list down all your credit cards, the amount you owe to each credit card, respective interest rates, and fees charged by the company.
- Now prioritize the credit card for paying off as per their interest rates and amount. You can choose the card with the lowest amount due or a card with the highest interest rates.
- Instead of allotting an equal monthly amount for different credit cards, target one card to pay off the due amount as you finish the total loan one by one. It will not only motivate you but also improve your credit score.
- You can make a savings account dedicated to paying off credit cards. Accumulate the amount in the savings account and pay off your total dues in one shot.
- Make spending in cash. Use a credit card just like your debit card. By making this habit, you can reduce your debt burden and pay off the remaining dues.
Now we will discuss how you can build credit out of scratch if you have just turned 18. Kindly note that it applies the same to the new migrants.
3 Best ways to build credit at 18
If you are 18, here are the three best ways to build credit.
- First of all, educate yourself on the basics of credit cards. You can take the help of your parents or your nearest finance planner to understand how credit cards work, the benefits of credit cards, and the drawbacks.
- Second, you can become an authorized user of your parent’s credit card. You will get a separate credit card. Paying bills on that card will build a good credit history.
- Make a habit of checking your credit card spending and credit reports. It will help you improve your credit score and make you financially prudent.
Now we will see how you can build business credit. Business credit is the lifeblood of any business; building good business credit can help you expand the business and meet contingency.
What are the best ways to build business credit?
Business credit is an essential tool for your business. If your business is new and has no credit history, you should prioritize building business credit, as you can avail of business financing easily at cheaper rates.
You can only avail of a loan for business with a good credit score. You must build a credit history to qualify for a business loan if your business is new. You can take the following steps,
- The first step is to establish a legal business, like a company, LLP, or sole proprietor, as it improves the credibility of your business.
- Register the business with the Secretary of State and get EIN and Employer Identification Number after registration. The government uses this number to identify your business.
- The next step is to open your business account in a bank and get a business credit card.
- Once you get a credit card, choose vendors for your business and start paying with your business credit card. Initially, you would get a low credit limit, but it will gradually increase with your regular bill payment.
It would help more if you maintained excellent financial discipline and healthy relations with vendors and creditors. It will help you build a strong credit record.
So, that’s all about the best ways to build credit. Patience and taking consistent steps over the next few months is the key to building a good record. All you need to do is get started with a secured credit card and use it wisely. You can take the help of a financial planner to get such a card and build a good track record of payment.
We hope that all your doubts are cleared. If you still have doubts or need assistance getting your credit card, feel free to contact us. We will be delighted to assist you.
Frequently Asked Questions
How to build credit with no credit history?
As we discussed earlier, it is pretty challenging to build credit without a credit history, but you can take the following steps to build credit,
The first approach should be to get a secure card. It’s a credit card backed by a cash deposit. So, whatever cash you deposit becomes your credit limit. The motive behind getting this card is to build a positive payment history which is a crucial factor in credit score. Use the secure card with responsibility and pay the bills on time. It will help you build your first credit history.
The second way is to take the help of your family members or friends with good credit history. You can become an authorized user of their credit card. You will get a separate credit card, but the primary account holder will be responsible for the payment. If you keep paying on time, it will build your credit history without the responsibility for the card.
You can take a credit builder loan backed by a fixed deposit. You build your credit history every time you pay the EMI. Remember to keep track of your credit history every quarter after taking the above steps.
How can I get a credit score in 30 days?
Building a credit score takes time. So, it takes work to make significant changes in 30 days. But you can take the following steps to improve the score in the short term,
First, get a copy of your credit score from a leading credit bureau like Equifax, Transunion, and Experian. Study the full report to find any inaccuracies in the information. Convey the inaccuracy to the bureau if you find any.
New credit inquiries reduce your credit score. So use credit cards responsibly. Wait to open a new credit account quickly, seeing the offers and discounts on the credit card.
Reduce the debt on your card if you have spent a high proportion of your credit limit. Pay the outstanding debt as early as possible. You will see significant improvement in your credit score in a short span when the proportion of the outstanding loan is significantly low.
Can you build credit in 3 months?
Yes, you can build credit in 3 months. It is challenging but not impossible. Keep in mind important factors that build credit. That is the age of credit accounts, credit utility, new credit inquiries, and on-time payment. Follow these steps to build your credit in 3 months.
Pay your credit card bill on time. It will build a positive credit history in 3 months.
Keep your credit card utilization low. Credit utilization is the amount of credit you utilize out of the total credit limit. Keeping the proportion low improves your credit score in the short term, like three months.
Also, keep checking your credit report every month. And notice any points that are impacting your credit score negatively. And work on it.
Remember, credit score building is a long-term process. So, you may or may not see significant changes in three months. But, with the help of consistent efforts, you will ultimately build a good credit record.
What is the fastest you can build credit?
Generally, it takes six months of consistent efforts to build a sound credit record. You can build a good credit score by using your credit card responsibly over a long time. You can take the following steps to build the credit fastest possible.
If you do not have a credit card, you should get one, like a secured credit card backed by your cash deposit or get a credit builder loan where your credit history is built every time you pay a loan instalment.
The second step is to use your credit with responsibility. Only utilize your credit card for up to 30% of your credit limit. Keeping credit utilization lower than 30% helps you build a good credit score faster.
Do not default on your monthly instalment or credit card bills, as it adversely affects your credit score.
What are 5 ways to build good credit?
Building good credit is directly linked to financial discipline and consistent efforts over a long period. Here are five ways you can build good credit.
Avoid applying for multiple credit cards in a short period. Please apply for a credit card only when you need it. Keep low credit accounts and use them for years, as older credit accounts have more credit scores.
Diversify your credit accounts. You can have a credit card, mortgage, and business loan. Having different types of credit accounts and paying them on time builds a strong credit history.
Keep checking on your credit utilization ratio. Start with a meager credit utilization ratio. Gradually you can increase it, but it should be at most 30 to 40%.
Set auto-bill payment to avoid payment default even by mistake. Only request a new credit card in a short period.