Having an established credit history tells a story of how you have handled monthly debt obligations in the past and helps shed light on what type of borrower you may be. If you don’t have an established credit history or are looking to improve your score, it may take anywhere from a few weeks to a few months to see changes. Follow these helpful and straightforward credit-building tips to help you start practicing healthy credit habits.
How to Build Credit Without Having an Established Credit History
Become an authorized user on a credit card
If you cannot apply for new credit on your own, another simple way to build credit is to become an authorized user on a family member’s credit card. If you are an authorized user, the account will impact your credit report. Thus, if the family member pays their bills on time and in full each month, it will positively impact your credit score.
Get a department store card
If you are not ready to get a credit card from a bank and cannot become an authorized user, another helpful way to build credit is to apply for a department store card. You may still incur expenses, build credit, and learn good credit habits by managing a department store card.
How to Build and Improve Your Credit
Pay your bills on time and in full (or at least the minimum)
This is a great and easy way to build good credit. Your payment history accounts for about 35% of your credit score, so paying your bills on time shows that you are spending and managing your expenses responsibly and have the appropriate means to incur those monthly expenses. Of course, you should try to pay the bill in full each month. However, if you cannot pay the total amount one month on the due date, try to pay part of the balance or the minimum fee so you do not accrue penalties or late fees.
- Set up autopay: If you have multiple accounts, bills, or credit cards, it can be challenging to remember when each bill is due. A great way to ensure you are making timely payments is to set up autopay.
Be aware of your credit limits
When you apply for new credit, they will give you a monthly limit on what you can spend or charge to the card, based on your income and past credit report. A general rule of thumb is to spend less than 50% of your limit each month, so you can responsibly balance your monthly income and expenses. For example, if one of your credit cards has a $1,000 limit, you should aim to spend no more than $500 on that card each month.
The balance between how much you owe vs. your credit limit accounts for about 35% of your credit score. Thus, having a credit limit ensures you only spend what you can afford and helps you manage to spend within your means.
Request an increase in your credit limits
If you are earning more income than when you applied for a credit card or have a strong credit history, you can request to raise your credit limits. Having a higher limit while keeping your balances the same may boost your credit score.
Keep your accounts open (even if they are idle)
Credit typically gets stronger with age. Try to keep your accounts open for a long time, even if you are not using the credit card consistently. Keeping an account open while not actively using the card will not hurt your score.
Don’t apply for new credit during the mortgage process
Applying for new credit, especially during the mortgage process, may negatively affect your score. This is because each time you apply for new credit, there will be a hard credit pull.
If you must apply for new credit during the mortgage process, it is best to discuss it with your loan specialist beforehand.
Mix up your credit
Your credit mix accounts for about 10% of your credit score and highlights the different types of debts you have – credit cards, student loans, auto loans, etc. It’s important to have a healthy credit mix to show you are a reliable and responsible borrower, which may help boost your score slightly.
How Long Does it Take to Improve your Credit Score?
If you notice your credit score dropped, it may be because of recent late payments, an error on your credit report, or a recently closed account. Depending on the severity of the issue, it may take a few days, weeks, or months for your score to improve.
Summary of Credit Tips
There are plenty of credit score tips and tricks that you can focus on to help build, improve, and maintain your credit score. However, the best way to build strong credit is to practice healthy credit habits consistently. Monitor your monthly spending, pay your bills on time, and know all your open accounts.
If you or someone you know is interested in learning more about credit or would like to speak with a mortgage specialist on how to improve your credit score, contact us today.