So everyone wants good credit. There is no ifs, ands, or buts about it. But credit is like your first crush in the 4th grade that plays with your emotions. When you do the good thing most of the day she don't care that much, but when you mess up or do something wrong ONCE, she ready to break up and give your after school hugs to a fifth grader ( I'm still not over that Leslie!). Maybe credit isn't exactly like that, but you catch my drift. So how do you build credit up? You get one credit card when you are 18 with a $300 limit. Then you charge small monthly expenses you would usually pay cash for like gas and groceries and just pay it off, on time, every time. You do that for about 2 years or so and then you may get a automatic credit limit increase or apply for another credit card ( which will post as a hard inquiry on your credit making it decrease and will not leave your report for two years). On the way you may finance a car and/or buy a house and continue to acquire credit cards, limit increases, and hard inquiries. Then you go from there being 100% responsible with 0 negative marks. Keeping your utilization and inquiries low and there you have it, the perfect credit score. This also takes a very long time, which isn't a bad thing, and gives 0 room for error.
You may pay late one day, you will have a few hard inquiries ( when you finance a car, the dealership sends your credit application to multiple banks, I had 4 hard inquiries on my credit when I financed my first car), you may have an unexpected bill that pops up in collections. So how do you build your credit back up to get financing for a car, home, or anything else.
You start by or continue to pay on time and paying all of your debts, and whatever else. But again, that's a long term process as some people may not have the money nor the time to do it. So how do you rebuild or build your credit relatively quickly when your first starting out or are trying to recover? Of course continuing to keep your inquiries and utilization low, but are there any quicker ways?
Below are 3 ways on how to raise your credit relatively quickly.
Get Credit Limit Increases Every 3 months
Shout-out to my good friend Elaina who told me about this. If you are paying your bill on time, regardless of the balance you have on your account, you can call all of your credit card companies and ask for a credit line increase that will not show as an hard inquiry on your credit report. They allow you to do this once every 3 months. If you try to do it again within those 3 months, they will have to pull your credit report. They will ask you two ( sometimes three) simple questions and do NOT need confirmation on the accuracy of your answer *cough cough*. They will ask you the following three questions:
1. What is your annual gross income.
2. What is your monthly mortgage or rent payment.
3. What do you want your new credit limit to be ( In my personal experience, I have only been asked this by one credit card company).
After answering those two to three questions, they will tell you what they can increase your limit to. This is great to do because your raising your credit score by lowering your utilization percentage. So let's say you have a credit card with an $1000 credit limit and you have a $500 balance. If you call and get a credit line increase and they give you an additional $1000. You just literally chopped your credit card utilization in half from 50% to 25% which will definitely push your credit score up. The new limit will usually show up on your credit report within a week or two so your credit score will rise pretty quickly. So imagine doing that with five credit cards instead of one and the total increase totaling $10k and not $1k. Your utilization will plummet and your credit will rise. BUT! Remember what Uncle Ben said (not me fool, Uncle Ben from Spiderman).
Just because you acquire more credit every 3 months does not mean you have to use it! Be smart and be responsible!
Pay Off Big Credit Balances When Possible
One thing that increased my credit score pretty quickly was paying off my car. I owed a little less than $4k on my car with about 26 more monthly payments to go. I had saved some money, used most of my income tax refund, and went hard at job #2 for the rest! Nothing felt better than walking out of Huntington Bank knowing I had my first real asset. It was an exhilarating experience. It made me feel great taking financial responsibility and doing something to enhance my future. I did this so my credit would shoot up for my first investment property I was in the process of purchasing. And when I say it shot up...... MAN! It went up about 50 points! Having almost 4K of debt fall off my credit score causing my credit utilization to decrease and my credit to increase. If you have been saving some money, or not ( if not start doing so) then think about paying off that car note, that motorcycle note ( you're next Debra, my Harley motorcycle), and those high credit card balances. I know some people believe that you should pay off your debts from smallest to largest and I'm not knocking that, but if you want your credit score to increase relatively quickly then use that tax refund check, that annual bonus, and all the other lump sums of money you may get to pay off that big piece of debt. You won't be sorry!
Being an Authorized User on a Financially Responsible Person's Credit Cards
Again, shout-out to my good friend Elaina who told me about this as well. This is a very effective way to build credit without having to do anything ( besides asking). So you find some one with good credit who is financial responsible, has great financial IQ, and does not mind helping others ( I recommend a close friend you have known for years or a family member). Try to find someone with high credit limits but relatively low balances on their credit cards. Make sure it's someone you trust as you will have to supply them with some sensitive information like your social security number and driver's license number amongst other things. Once they add you on as an authorized user, their credit history for that specific card, the credit balance and limit, the payment history, and credit account is added to your score. Here is a real life example, I helped my cousin build his credit back up.
I added my cousin on 3 of my credit cards after calling to get the credit limit increased without an hard inquiry (step #1).
1. The first card had a $10,000 credit limit with a $0 balance and credit history of 2 years and 0 negative marks
2. The second card had a $5,700 balance with a $0 balance and credit history of 2 years and 8 months with 0 negative marks.
3. The third card had a $4,000 credit limit with a $400 balance and a credit history of 3 years and 7 months with 0 negative marks.
Having all of these cards added to his credit report boosted his credit up by 157 points. ( From the low 400's to the mid 600's). Having over $20k in credit, credit card history dating back 3 years, and perfect monthly payments all combined to boost his credit!
Also, if it so happens that the account holder gets into financial trouble, misses payments, etc. They can take you off and the negative marks disappear but everything else stays! I advise the account holder to get the card with the authorized users name on it and use it for small monthly expenses they would usually pay cash for and just pay it back right away. That is only if you do not feel comfortable giving the authorized user a card. Grabbing gas, groceries, or just using that card as your primary credit card will work. People regularly use this when trying to either build credit for their kids or help their kids or parents rebuild their credit. This is a great tool for both! Sometimes, if FICO sees that you are doing this just for the credit boost, they can sometimes block it (this has not happened to anyone that I know who has done this). NO, YOU WILL NOT GET INTO ANY TROUBLE. Just something to keep in mind. So I would NOT recommend paying someone to do this but have a close friend or family member help you out of the kindness of their heart.
BUT, using these things to boost your credit is nothing if you are not applying the principles and habits of a person with great credit. Make sure to start paying on time all the time ( AUTO PAY SHAWTY), paying more than the minimum balance on your monthly statement, keeping your utilization low, and not closing any of your accounts
You may only have a little time to do the steps above. This article is describing some of the major changes coming to how your credit score is calculated. So hop to it!!!