7 Proven Credit Builders

by Neal Frankle, CFP ®

Having a solid credit score is a great way to entice lenders to do business with you at reasonable rates. It doesn’t matter if you have a good credit score and want a great one, or you have experienced some financial setbacks and want to get back on track. Here are 7 easy credit builders to improve your credit score fast.

1. Understand What’s Important

What’s important is how much debt you have to available credit. Ideally, you want to have very little (or no) debt but lots of credit available. That tells lenders that you pay what you owe. That being the case, if you want a higher credit score, apply for as much credit as possible but only charge small balances each month and make sure to pay them off. The best bang for your buck is to charge 10% to 30% of the available credit on any one card and pay that balance off every month.

2. Take It to the Bank

Open a checking account and manage it well. Track your spending and make sure you don’t get overdrawn. This demonstrates financial responsibility.

3. Make Friends

If you want to make a major purchase but can’t find lenders, ask someone who trusts you and who has good credit to co-sign the loan. This will help you build your credit and keep your interest rate low too. Keep in mind that if you flake, you’re going to mess up this person’s credit and have an enemy for life. In other words, only take this step if you are sure you can make the payments.

While we’re talking about friends, tap into them if you have really expensive credit card debt. See if they would like to invest in you by paying off that debt and having you pay them at a more reasonable rate. It’s great for them (assuming you make your payments like a good Pilgrim) and it’s a great alternative to credit card debt for you.

4. Check Yourself Out

Get a credit report just to make sure it’s accurate. Even if you haven’t ever had a credit card before, there could be inaccurate information reported about you. This could be a result of identity theft or just errors made by credit reporting bureaus. If that’s the case, you have to take care of it. The good news is you can clean up your credit report yourself very easily.

But make sure everything is on the up-and-up by getting a free annual report. Creditors, mortgage companies, landlords and employers use these numbers to decide whether or not to do business with you. Make sure you don’t get penalized for someone else’s mistakes. The good news is that you can get a free credit score without using a credit card. Take advantage of this.

5. Pay Bills on Time

This is your #1 best credit builder because it’s what your lenders really care about – getting paid on time. All it takes is one missed payment to really torpedo your credit score. By staying ahead of your bills, you’ll do yourself a huge favor. Your best bet is to put your payments on automatic payment. This way, you’ll never forget to pay your bills.

6. Get a Secured Credit Card

If you have bad credit, you may not be able to qualify for a traditional credit card. If that’s the case, you can get a secured credit card. For this card, the company forces you to deposit money and your deposits establish the credit limit. If you are saying to yourself that this is actually a debit card and not a credit card, you’re right but that doesn’t matter. The objective is to build your credit score and this step can be a great credit builder.

Just be sure not to get taken to the cleaners. The companies that offer these cards often take advantage of their customers. Make sure not to pay application or annual fees and make sure the interest rates are reasonable. One last tip. If you do get a secured credit card, make sure the company you use reports to the credit bureaus. If they don’t report, this card won’t help you build your credit.

7. Don’t Buy Crap You Don’t Need

This is probably the most important tip there is. If you want to build your credit, make sure not to do anything that will ruin it. Duh…

The best way to make sure that never happens is to keep your spending under control. Remain vigilant about your spending and think twice before you spend money – especially if you don’t have it to spend.

What other tips can you think of? If you’ve had poor credit in the past, what did you do to rebuild it?

 

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{ 2 comments… read them below or add one }

NickDenton March 5, 2013 at 8:40 AM

An easy way is to improve your credit utilization by requesting a credit limit increase.

Do need to make sure they don’t want to run a hard request.

Rule of thumb is to use it on older cards. Good way to dust them off and put them back to work for you.

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C Flare February 4, 2013 at 4:54 PM

I’d say number 7 is probably the most important of the entire list. So many of us just buy too much crap, and even worse, put it on a credit card at 16%. Just having a little self control and restraint would go a long way in keeping a lot of people’s debt and credit issues under control. If you have to buy something, only make the purchase if you can pay for it in cash. That way you’re not living with that purchase 6-10 months from now when you’re paying the minimum monthly payment. We put together a top 10 list of ways to improve your actual credit score. Hope it’s ok that I post a link here. I thought some people might get a few good tips from it. http://www.creditflare.com/top-10/top-10-ways-to-improve-your-credit-score/

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