While it is certainly possible to live in the United States without needing credit, the reality is that most people will need access to it at some point. Whether it’s renting an apartment or buying a new vehicle, credit is a big part of the American economy and knowing how to build and maintain credit is an important skill.
Building credit is critical to receiving the best credit offers. With good credit, you may qualify for more types of credit and receive lower interest rates than people with lesser credit. Your credit can even impact whether you get jobs in certain industries.
If building credit is one of your financial goals, review this comprehensive guide on how to build credit and potentially boost your credit score.
How to Build Credit: Top 10 Most Effective Ways
Everyone’s credit profile is unique which means that building credit is going to be a little bit different for each person. However, there are some “tried and true” methods for improving your credit score.
If you want to know how to build credit, Experian highlights some of the most effective ways to boost your score:
- Make all of your monthly payments on time by setting up autopay.
- Get a personal loan to consolidate your debt and establish a payment history.
- Apply for a secured credit card and keep a very low balance.
- Pay down credit card balances that exceed 30% of your credit limit.
- Sign up for a credit monitoring service that checks your credit score every month.
- Add principal payments to outstanding loan balances to lower your total balance.
- Keep your credit card accounts open after you pay them off and don’t use them.
- Review your credit report for any errors that could hurt your score and dispute them.
- Find someone to cosign for you if you don’t have any credit yet.
- Negotiate with creditors on collections accounts to pay them off.
Building credit requires two things: consistency and timeliness. That means you need to consistently make your payments when they are due. You also need to keep your credit inquiries to a minimum and refrain from opening too many new accounts.
Frequently Asked Questions About How to Build Credit
Even for financial experts, building credit can feel overwhelming. Review some of the most commonly asked questions about how to build credit before you put together a plan.
What Is Good Credit?
Different lenders consider different scores to be “good credit.” In general, though, many lenders rely on FICO scores to make their decisions. Experian lists a good FICO score as anything over 670. This information is validated by Equifax, another leading credit bureau.
A good VantageScore, on the other hand, is anything over 661. Even though this seems like a subtle difference, a few points can make a significant impact on your interest rates.
Can You Build Credit Without a Credit Card?
While a secured credit card is a good option for building credit, it can be hard to get a credit card if you have limited or lesser credit. It also might not be the best option for you.
Personal loans are another option for building credit. Instead of a variable monthly payment, you’ll have a fixed payment that you can consistently budget for.
How Long Does It Take to Build Credit?
Unfortunately, there is no good answer to this. Your credit score is comprised of several factors, including how long you’ve been using credit and how long certain accounts have been open.
This means the time it takes to build credit varies from person to person. Some changes might result in changes within a couple of months, where other changes might take over a year to potentially boost your score. Experian indicates that it will take at least three to six months to see changes.
The Most Practical Benefits of Building Credit
Aside from the old wisdom, “you need credit to get credit,” building credit offers multiple benefits that go beyond just being approved for other credit offers. Credit permeates multiple aspects of the American financial system.
The most practical benefits of building credit include:
- Lower interest rates: Whether you’re applying for a credit card, mortgage, or personal loan, good credit will usually result in lower interest rates.
- Longer loan terms: Certain lenders might have restrictions on their loan terms that might loosen as your credit score improves.
- Higher approval limits: Your credit and income are important components of determining your approval limits for most credit products.
Your credit history can also impact things like your auto insurance rates and whether or not you get approved for an apartment lease. Building credit may ultimately save you money.
How to Build Credit with the Right Financial Products
If you want to start building credit now, you should put together a plan. That means you might need to apply for a personal loan so you can establish a solid payment history. If you have some debt already, you may look into a debt consolidation loan to manage some of your balances.
Once you know whether you need a personal loan or a debt consolidation loan, you’ll want to compare loan features and offers. You want the right combination of value and convenience.
Looking for a personal loan for building credit? Mariner Finance may have options to help you establish credit and pay off any outstanding debt.