It’s the personal finance Catch 22—you need credit to get credit. But what many people don’t realize is that you don’t necessarily need debt to get credit. Or, backing up for a second, you don’t necessarily need to carry debt to improve your credit scores. In fact, if you’re looking for ways to boost your credit score overnight, your best bet involves paying down high balances on revolving lines of credit—like a credit card or home equity line of credit.
Let’s break down debt-free options to boost your credit score quickly and get a good credit score without going into the red.
1. Get a Credit Card
It might sound counterintuitive, but getting a credit card can be the best way to achieve a good credit score. That is, if you use it responsibly by making on-time payments and keeping your utilization rate low.
If you’re having a hard time qualifying for a credit card, look for credit card issuers who grant cards to people with bad credit. Qualifying for a credit card with a low credit limit is all you need to do to potentially boost your score. Make a few small charges that you know you can pay off each month. Then pay your account in full, and on time, every month to start building your credit.
Keep an Eye on Your Credit Utilization Ratio
Keeping charges below 10% of your credit card’s limit is a great way to improve your credit. If you have a card with a $500 limit, for example, keep your monthly charges below $50 as a good, credit-building strategy. Your credit utilization rate accounts for a large percentage—30%!—of your credit score.
Make Your Payments on Time
When it comes to revolving loans—and particularly credit cards—there’s no need to carry a balance month to month. If you do choose to use your credit card, make sure to pay your bill on time every month. Payment history, or the record of whether you’ve paid your bills on time or not, makes up 35% of your credit score. That’s why you don’t want any late payments on your credit report. Still worried about building up credit card debt? Make sure to only use it for what you can afford.
And if you’re worried about your racking up credit card debt, just keep your balance at zero. Simply having another credit account could help improve your credit score, even if you don’t use it. After all, account mix, or the types of credit accounts you have, makes up 10% of your credit score. That’s nothing to scoff at.
2. Opt for a Secured Credit Card
A secured credit card is one that is backed by an upfront deposit. Traditional credit cards are unsecured and don’t require a deposit.
If you can’t qualify for a traditional, unsecured credit card because you have no credit or have made credit mistakes in the past, consider applying for a secured card instead.
With a secured card, you can make a small deposit—typically a couple hundred dollars—with the credit card issuer and get a card. Your card’s credit line is usually, but not always, your deposit minus any fees charged by the card issuer. Some issuers will give you a credit line larger than your deposit.
To boost your credit, make sure you choose a secured card that reports to each of the three major credit reporting bureaus—Equifax, Experian and TransUnion. Then, make steady on-time payments to your secured card and keep charges below 10% of your credit line. After a year or so of on-time payments, consider asking your credit card issuer for an unsecured credit card to increase your credit score.
3. Look into Credit Builder Loans or Accounts
A credit-builder loan is the installment loan version of a secured credit card. “Borrowers” put a small amount of money—$500 or less—into a savings account at a bank and then make fixed monthly payment search month until they’ve “paid back” the money and have access to the money again. Credit builder loans are designed specifically to help people with no, poor or bad credits how their ability-to-repay, so, yes, the bank should be reporting the payments to the major credit reporting bureaus.
Some banks pay-albeit a very small amount-interest on their credit builder loans or accounts, so you could wind up pocketing a few extra dollars from that deposit while getting your credit in good standing.
4. Become an Authorized User
If you don’t feel ready for your own credit card or simply can’t qualify for one, see if a family member, like a spouse, parent or guardian, will add you as an authorized user to their credit card account. An authorized user can make charges to the account, but they’re not responsible for actually paying them back. That’s the primary cardholder’s responsibility.
Many banks and issuers report their authorized users to the credit bureaus. But again, you’ll want to check with the primary cardholder’s lender ahead of time, so positive information associated with the account can help you build credit. Given you’re not liable for the charges, negative information can be disputed and removed, should it appear on your credit report. Of course, you’ll want to responsibly use a card that your family member or loved one gives you. Alternatively, you don’t use the card at all, because long as the primary cardholder is using the card responsibly, you’ll build credit too.
5. Monitor Your Progress
Track of your credit-building efforts with Credit.com’s free credit score and report card. You get your Experian credit score for free along with a customized plan to help you improve your credit score and build credit. Check your credit regularly to make sure you stay on track and so you can monitor for any discrepancies that may happen along the way. It also helps watch for suspicious activity and even identity theft.
Remember, the key is building a solid payment record is following the 10% rule. Not acquiring new credit card debt until you can do that helps too. Only charge what you can payoff each month and maximize your credit-building efforts by carrying no more debt than 10% of your available credit limit. Also pay your bills on time. And watch your credit score climb.
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Boost Your Credit Score
The lower your credit score is when you’re first starting to rebuild or build your credit, the likelier it is that you can achieve a boost relatively quickly, although not actually overnight. Even the smallest change though when you have a very low credit score can result in a significant increase in your score fairly quickly.
How Long Will It Take to Boost My Score?
Building good credit takes time and patience depending on your overall credit profile. However, six months of on-time payments is usually a good timeframe for getting your foot in the door if your credit was previously nonexistent. If you have high credit card balances on record, you might increase your credit in 30 days by paying a big chunk of them down and refraining from making new charges, of course.
It’s also possible to see a boost in 30 to 45 days if your credit is being weighed down by a legitimate error. If the error isn’t legitimate, there are ways to dispute errors and get incorrect items removed from your credit reports. Still, to keep your credit score solid in the long-term, you want to:
- Make all your payments on time
- Keep debt levels low in relation to your available credit limit
- Be careful about incurring too many credit inquiries
- Add a mix of credit accounts-installment vs. revolving loans, for instance-as you can afford to
- Have credit and use it wisely for at least five years