How To Build Credit
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Learning how to build credit can seem like a very daunting task especially if you have no clue where to start! It is actually easier to build credit from scratch than it is to repair or rebuild your credit. If you want to get the best deals on a personal/business loan, house loan, car loan, credit card or even cell phone service you NEED to have a good credit score. With that being said we are going to talk about how to build credit, why having good credit is important and the 5 factors that make up our credit score.

What I’m about to share with you are the exact steps I took to rebuild my credit score (FICO Score) from 518 to over 750. Below are 6 things to consider when it comes to building your credit quickly! As a matter of fact these 6 steps can be used if you have no credit at all or you’re rebuilding or building your credit score.

 

How To Build Credit FAST!

Step 1. Get a credit card! A secured or unsecured credit card.
One of the easier ways to build credit is get a credit card. If you have no credit history at all, you should consider getting a secured credit card. A secured credit card works just like a regular (unsecured) credit card except you have to provide the bank with collateral (money) which is in the form of a refundable deposit. There are several banks (Citibank, Capital One, Discover, Bank of America and more) that offer secured credit cards. Secured credit cards differ from regular (unsecured) credit cards in that a person with absolutely no credit is likely to get approved and given a credit card versus being denied for a regular (unsecured) credit card. Here’s a quick example (excluding Capital One) of how most secured credit cards work.
You apply for a secured credit and if you’re approved you make a deposit starting at $200 and above to secure your card and credit limit. Let’s say you got approved for the Discover It Secured Credit Card and you deposit $200 (your $200 is refundable) with Discover. Your credit limit for that card will be $200. Of course you could deposit more than $200 to have a higher credit limit but it is not necessary. After about 8-12 months of using your secured credit card responsibly Discover will graduate your card to an unsecured (regular) credit card. At that time Discover will refund your $200 deposit and “possibly” increase your credit limit.
Step 2. Use your credit card!
So once you get your credit card (secured/unsecured) you want to be sure to use your credit card. Using your credit will give the credit card company something to report to the 3 credit bureaus. Of course using your credit card wisely is strongly advised because we are trying to build our credit score. As a matter of fact it is always a good habit to only use your credit card if you have the money in the bank to pay for the item at the time of purchase. That brings us to the third thing to consider when learning how to build credit.
Step 3. ALWAYS pay your credit card on time!
It’s very important to pay your bill on time. Every time you pay your bill on time you’re building trust with the bank. It’s important to build trust with this bank because it will be reported to the credit bureaus and in turn will make it possible for other banks or future lenders to trust you. Another reason paying your credit card bill on time is so important is because our payment history makes up 35% of our credit score. Payment history is the biggest part of the 5 factors that make up our credit score. You’d be surprise to know how easy it is to get a great rate on loans or credit cards when you have a good credit score.
Step 4. Keep your credit utilization low
Credit Utilization is 30% of our credit score. It is the second largest part of the 5 factors that make up our credit score. So if you’re new to credit chances are you have no idea what credit utilization means. Credit utilization is just simply the amount of credit you use in relationship to your credit limit. Let’s say for example you have a credit card with $1,000 credit limit and you use $500 on a purchase. Your credit utilization would be 50%. If you want to have the highest possible credit score you want your credit utilization rate to be 10% or lower. So whenever the credit card reports to the credit bureaus you’d like for your credit utilization rate to be $100 or less if your credit limit is $1,000. A good practice is to pay off ALL your credit card balance every month. If you have a balance on your credit card try to have 10% or less of your credit limit because you don’t want to WASTE money paying interest.
Step 5. Consider getting another credit card
After having your first credit card for about a year you want to consider getting another credit card. Having multiple credit cards can improve your credit score. Multiple credit cards will allow you to have a higher overall credit limit which will make it easier to have a low credit utilization rate. Another reason to have multiple credit cards is that it shows banks that you know how to manage several credit cards at the same time which means that they can trust you.
Step 6. Consider getting Credit Karma or NerdWallet
When it comes to building your credit you need to know the 5 categories that make up our credit score. Credit Karma and NerdWallet are great tools to use to learn more about our credit score. Both apps (Credit Karma & NerdWallet) show you the 5 categories that make up our credit score.

Here’s a quick recap of How To Build Credit!

  1. Get a credit card…secured or unsecured
  2. Use your credit card!
  3. Always Pay your credit card on time
  4. Keep your credit utilization low 0% – 10%
  5. Consider getting another credit card
  6. Considering getting credit karma or nerd wallet

Why Do We Need Credit?

We need credit because it allows us to have access to certain things that most of us can’t live without. Most of us at some point in our lives will need at least one if not all of these items. We may need a cell phone, cable, internet service, electricity, credit cards, a loan for a car, a house, or a business. In addition to needing credit to attain those things, having a good credit score will make your life easier or at least save you some money. Your credit score is important because it tells banks how much of a risk you are. In other words the higher your credit score the more likely you are to manage and repay your loan. 
When it comes to learning how to build credit you have to be in the know. You can get a free copy of your credit report from 
https://www.annualcreditreport.com be sure not to pay for this service because you can get your credit report and score for free. (Get your free credit score from Credit Karma and/or NerdWallet)
In regards to your credit report be sure to look at it and make sure everything is accurate. If you find inaccurate information be sure to contact that particular credit bureau and dispute it. A good website to check out is
https://www.consumerfinance.gov/ because that website is very informative. If you have inaccurate information removed from your credit report your credit score may go up.

Credit (FICO) score explained

When it comes to building credit there are 5 categories that make up our credit score. The first 2 that have the most weight is payment history (35%) and credit utilization (30%).This is in the order of the most impactful or larger to smaller.
The 1st category which holds the most weight is payment history.
Payment history is 35% of your credit score. It’s imperative to make on time payments. Missing one payment could hurt your credit score. In most cases it will lower your score for a while. It is imperative to pay your bills, loans and credit card payments on time all the time.
The 2nd category is Credit utilization also known on other scoring models as amount owed. Credit utilization makes up 30% of our credit score. If you want to maximize this category use between 0 -10% of your credit card limit. If your credit limit is 1,000 dollars make sure that your balance is $100 or less when your credit card statement closes. What I do personally is use my credit card for all my transactions because I’m earning cash back or points that I can redeem however I’d like.
I also make payments to my credit card once every other week. I NEVER carry a balance on my credit cards because I don’t want to pay any interest.

The 3rd category is Credit history or length of credit history – credit history makes up 15% of our credit score. An easy example of credit history is how long have you had a credit card. It is super important to keep your credit cards open and never close them. That’s why you should choose your credit cards wisely. Certainly try not to get credit cards that have an annual fee unless the perks offset the annual fee.

The 4th category that makes up your credit score is new credit or “hard inquiries”. This category is 10% of your credit score. New credit refers how many new accounts or hard inquiries that has taken place within the past 2 years. An example of a hard inquiry is when your credit is checked to get a car, a new credit card, a new loan and sometimes a credit limit increase on your current credit card. Hard inquiries will normally fall off your credit report in 2 years. Having a lot of hard inquiries can be a red flag to lenders. If possible try not to have more than 5 inquires on your credit report within a 2 year period.

The 5th and last category that makes up our credit score is (credit mix) types of credit. For example a major credit card, a department store card, a car loan, a house loan and even a business loan. This last category is also 10% of your credit score. This is such a very small portion of our credit score you don’t have to work on it. You don’t need to go apply for a variety of credit types to get this last 10% that makes up our credit score.

If you’ve read through all the information above this paragraph, CONGRATULATIONS are in order. You are insanely motivated about learning How To Build Credit. If you’d like to continue to learn everything you need to know about credit, credit cards and how to make money using credit cards be sure to SUBSCRIBE to our YouTube channel by clicking the image below.

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