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How to Build Credit the Smart Way

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building credit

Let’s be perfectly honest: There really aren’t any “get big quick” tricks when it comes to building credit. Sure, if you’ve been using credit already you can pay down any high credit card balances you’ve accrued and there’s always a chance your scores are being impacted by an error, in which case, its removal will give you a bump. Still, when it comes to the best way to build credit, you really want to focus on making on-time credit payments every month. That’ll jump-start and bolster your payment history, which is the most important factor among credit scores. Next, you’ll want to keep you debt levels low, which will help you score big points when it comes to the second biggest credit score factor: credit utilization (how much debt you’re carrying versus your total credit limits.)

Still, let’s not get too far ahead of ourselves: To build credit the smart way, you have to get credit, yes? Let’s break down your best options in that respect and then tackle how to build good credit in the long-term.  

How to Build Good Credit

Believe it or not, there are loans out there designed specifically for people looking to build or rebuild their credit. (If you’re not sure where your credit stands, you can view your free credit report snapshot on Credit.com. You’ll get two free credit scores, updated every 14 days, so you can check your progress as your work to build them up.)

Many credit cards for building credit, including a secured card, works well for establishing a solid score. Just choose a routine monthly expense, charge it on your credit card and pay the account in full each month. Payment history makes up 35% of your credit score, so making a series of on-time payments can really help your score.

A secured card is a good option for consumers with no or very little credit. After a year or so of on-time payments, you’ll build enough credit to qualify for an unsecured credit card. (You can go here to learn more about the best secured credit cards on the market.)

Recommended secured card

Discover it® Secured Card – No Annual Fee

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Card Details
Intro Apr:
N/A

Ongoing Apr:
23.74% Variable on purchases & balance transfers

Balance Transfer:
Intro: 10.99% for 6 months

Annual Fee:
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Credit Needed:
Poor-Bad-No Credit
Snapshot of Card Features
  • No Annual Fee, cash back on every purchase, and helps you build your credit with responsible use.
  • A security deposit of $200 or more will establish your credit line (up to the amount we can approve). Automatic monthly reviews starting at 8 months to see if we can transition you to an account with no security deposit.
  • Reports to the three major credit bureaus. Plus, get your FICO® Credit Score for free on monthly statements, on mobile and online.
  • Earn 2% cash back at restaurants & gas stations on up to $1,000 in combined purchases each quarter. Plus, 1% cash back on all your other purchases.
  • Get a dollar-for-dollar match of all the cash back you’ve earned at the end of your first year, automatically.
  • Tools to assist you; email alerts, text reminders and 24/7 customer service.

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Another option for building credit the smart way is through a credit builder loan from a credit union. A credit builder loan is an installment loan with terms ranging from six months to 18 months. Because credit builder loans are reported to one or more of the three national credit reporting agencies, on-time payments of the loan will build up your credit.

It’s a good idea to choose a credit builder loan that reports to all three credit reporting agencies — Equifax, Experian and TransUnion. That way you’ll get the credit for your on-time payments in credit reports from each of these companies.

With a credit builder loan, a lender places the money being borrowed into a savings account on your behalf and you pay off the loan through a series of monthly payments. You get access to the money in the savings account when the loan is paid in full.

So with a credit builder loan, you build credit and you build up some (albeit very, very small) savings, too. Loan amounts for credit builder loans may be small, around just $500, so you won’t need to struggle to make monthly loan payments.

Just be sure to make those payments on time each month. If you don’t, late or defaulted payments will be reported on your credit report. And you’ll wind up hurting the credit you’ve been working so hard to build.

How Long Does it Take to Build Credit?

Building good credit takes time. Having said that, if you play all your credit cards right (see what we did there?), you could establish a solid baseline card after 6-to-12 months of on-time payments. However, your work doesn’t stop there. Here are some other steps you can take to build good credit in the long-term:

  • Watch your credit utilization: It’s generally recommended people keep that aforementioned credit utilization rate below ideally 10% and at least 30% of their total credit limit(s).
  • Add a mix of credit accounts over-time. Credit scoring models reward you for being able to responsibly manage all types of credit. So, if you’ve mastered the credit card (a revolving line of credit), your score could benefit from an installment loan, like an auto loan (or vice versa). That’s not to say you should go out and buy a car simply in the hopes of bolstering your credit. At the end of the day, you only want to take on financing you need and can actually afford. However, adding a mix of credit accounts organically over time can improve your credit standing.
  • Limit credit inquiries. There’s another reason you don’t want to go out and apply for too much credit at once — all those financing applications will generate hard inquiries on your credit report, which can ding your scores and be viewed as a sign of risk when amassed. So be careful to limit and space out loan applications as you work to build your scores.
  • Monitor your credit regularly. That’s how you’ll know how you’re doing and what you can work on to improve your scores. It’ll also help you keep an eye out for errors on your credit reports, which are more common than you think. (You can go here to learn how to dispute errors on your credit report.) Remember, you can pull your full credit reports for free each year at AnnualCreditReport.com.

Jeanine Skowronski contributed to the reporting of this article.


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  • Vivienne Hall

    Looking forward to my credit to be back where it use to be, 720+

  • Travis Price

    As Deb said, they do matter when you apply for a rental, they offer discounts of auto insurance and some jobs look at your credit to judge fiscal responsibility.

  • Brittani

    How can I get A Credit Card With A 626 Score


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