Bad credit is a major problem when one is trying to get a loan from a bank or other type of financial institution. Almost all of them check your credit score when you apply. The reason is that they’re trying to find out just how trustworthy you are as a loaner. Building on this idea, the lower your score is, the less you are likely to obtain the desired loan. Many people say it’s impossible to up your credit score, but we are here to prove them wrong. Here are five tips on how to build credit when applying for a loan.
How to Build Credit in Five Steps
Before we get started on the concrete tips and tricks on how to build credit, there is one crucial piece of information you need to know. Go online and find out what is your current credit score. Evidently, if you don’t know where you stand, it will be difficult to improve your score or take the appropriate measures.
There are many websites where you can do it for free. It typically takes a few minutes after you figure out what information you need to fill in. However, once you do that, make sure you also check your credit score using MyFico. This website is the one used by most lenders, as opposed to all the other sites that offer free calculations. It will tell you the real figure banks will use to assess your case when you apply.
Now let’s get down to business and look at some great ways on how to build credit.
#1. Pay all your late bills and rates and never be late again
If you miss any payments or are late in honoring them, unfortunately, they will stay on your record for six years. This includes absolutely anything from mortgage and credit cards payments to personal loans, and electricity and gas bills.
In fact, some lenders, especially private ones can also look at the way in which you paid your rent over the past few years. In case this has happened to you, don’t panic because there is something you can do about it. You can contact your former landlords and even the electricity and gas companies. If you can make a compelling case, they might agree to delete these mishaps from your records. However, you must be aware of the fact that you have to present reliable and substantial evidence as to why you were not able to pay on time.
If you were out of a job or had a family emergency such as a funeral or a member of the family being ill, they might be understanding towards you and agree to let you off the hook. You can also use this way of erasing bad payments from your record if you believe you have been wronged in the past.
#2. Stop using your credit cards
In fact, stop using your credit cards on such a massive level. The equation here is simple. The more money you use from your credit cards, the lower your credit score gets. The optimum usage rate would be 30 percent or even less from all the money you have at your disposal on a particular card.
Therefore, if you find yourself in this situation what is the tip on how to build credit score? It’s easy. Pay down all your balances and then keep them low. A great way to do that would be to talk to your loan issuer and ask if you are allowed to make use of several payments every month.
#3. Old debt should find its way onto your credit report
Some people mistakenly believe that leaving your old debt on your credit report will do your more wrong than good. That is not true. In fact, it is a long way from being true because old debt can, in fact, do you good.
If we’re talking about good credit, meaning one which you have paid on time, then it will show your future lenders that you are trustworthy. You had credits to your name before, and you managed them correctly and on time. The longer your credit history is, in fact, the better you are going to look in the eyes of your possible lenders.
#4. Raise the limit of your credit
Another thing you can do when it comes to tips on how to build credit fast is to ask your current creditor if they can raise your credit’s limit. For example, if you have a MasterCard or a Visa, ask them to make it good for $5,000 instead of $2,000.
This is a fantastic trick that goes hand in hand with tip number two on our list of how to build credit fast. You get to use the same amount of money from your credit card as you typically do. Still, since the limit is so much higher, it will seem like you are spending less or under 30 percent, as we advised you in a paragraph above.
However, this tip only works if you know you can trust yourself not to spend the extra money they will give you. You must understand that they are there only to raise your credit score and not to be spent under any circumstances. If not, you will be back to using the same 66 percent of your allotted amount before you can say ‘credit.’
#5. Mix it up
A good tip on how to build credit fast is to mix up your credit types. As an example, take out a tiny personal loan from the credit union. Apart from that, you could also buy some furniture or some electronic devices and pay them through installments. Consider it an investment in your future loan.
Even so, the same rule applies as for tip number four. You may only take a small loan or buy some appliances if you know you can make all the payments on time. If not, you will end up with a trigger for lowering your credit score instead of upping it as you set out to do.
Why is it important to know how to build credit fast? Here’s a reason why. The National Foundation for Credit Counseling released a study which shows that more people are embarrassed to admit what their credit score is, in fact, than they are to admit what their weight is. That’s a thinker.
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