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
Getting a credit card can be the quickest way to wind up making purchases you can’t actually afford. But, it can also be the best way to achieve a good credit score. That is if you make on-time payments on your credit card as well as any other type of financing you have. Payment history makes up 35% of a credit score.
Most installment loans, like a mortgage, auto loan or student loan, require taking out a lump sum of money and paying it back over a set period of time. But when it comes to revolving loans—and particularly credit cards—there’s no need to carry a balance month-to-month. Instead, qualifying for a credit card with a low credit limit is all you need. Make a few small charges each month to the card and pay your account in full, and on time, every month to begin building credit. There are credit card issuers who grant cards to people with bad credit.
Keeping charges below 10% of your credit card’s limit is good for your credit score as well. If you have a card with a $500 limit, keep your monthly charges below $50 as a good, credit-building strategy. The credit utilization rate accounts for a large percentage of your credit score. It falls into the category of amounts owed which accounts for a staggering 30% of the criteria used to create your FICO scores.
Consider the Petal Visa Credit Card
It requires no credit history for approval. It has no annual fee. And it can help you build credit when you use it responsibly by reporting your activity to all three credit bureaus. You can also enjoy a credit limit from $500 to $10,000 without making a deposit.
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.
One great option for a secured credit card is the Capital One® Secured MasterCard® card. It has no annual fee, reports to all three credit bureaus, and will give you access to a higher credit line for no additional deposit if you make your first five monthly payments on time.
3. Look In to 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 payments each 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 poor, no or bad credit show 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.
One interesting option for a credit builder account is Self Lender. With the Self Lender account, you pick an amount to invest in a CD for 12 or 24 months. You pay a nonrefundable administration fee. You then make a payment each month. The payment pays interest on the account as it would on a loan. You also though earn interest on the account as you would for a CD. The CD earns interest at a lower rate than what you pay for the loan though. Still, you build credit.
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 pay off 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.
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 see a boost 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 you 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
This article was last published December 07, 2016, and has since been updated by another author.
[UPDATE: Some offers mentioned here may have expired and/or are no longer available on our site. You can view the current offers from our partners in our credit card marketplace. DISCLOSURE: Cards from our partners may be mentioned here.]