- Personal Finance»
- Managing Credit Cards & Payment Options
How To Build Your Credit Score Fast
What's a Credit Score
For those not familiar with a credit score, a credit score is a three digit number anywhere between 300 to 850. The higher the number, the better chance you have to be approved for credit cards. Lower numbers in the 300 range indicate that you've had bankruptcies in the past or your prior payment history is not paid on time and etc.
What Effects My Score
There are numerous things that take part in each one of our credit scores. Usually, your payment history and the amount owed are the top two categories when determining your credit score. Other factors that contribute to your credit score are types of credit used, length of credit history, and any new credit you obtain.
Basically, you have to be consistent among all of the five categories to get the best possible credit score. Simply because you pay your debt on time does not mean that your credit score will skyrocket. Credit building takes time and planning.
Where Can I Get My Credit Score Report?
Getting a credit score is hard nowadays and a bit tricky. A lot of the providers offer a free credit score but end up charging your credit card.
I always use MyFico to obtain my credit score as its one of the best places to use. They also have a nice credit monitoring service to alert you when there is a significant change in your credit score.
Some Financial Terminology
In terms of financial terminology, here is what you should know before continuing to read this article.
- Credit cards vs debit cards - These two are NOT the same. Debit cards are usually linked to your checking or savings account. Meaning that you can only spend what's available in your checking account, otherwise your card gets declined. Debit cards are usually associated with a pin number that must be entered at checkout. Debit cards do not built your credit score and have no effect on it. There are no interest fees associated with debit cards. However, some banks will allow you to spend more than what you have in your bank account and charge you a fee for covering the amount you did not have. Credit cards give you a set limit that you can spend and even go over. There are late payment fees and interest fees for any amount that is not paid in full. Credit cards can hurt and improve your credit score.
- Credit Limits - These are set card limits that you have on your credit card, some institutions allow you to cross over your limit, while others do not or charge you a fee for crossing it.
- Interest rates and fees - Interest rates are percentage based fees set by your credit company institution. These fees are usually close or above 20%. In terms of interest fees on credit cards, they are only valid if you do not pay your monthly balance in full, there are not interest rates if you pay off your balance in full.
- Due dates - This is pretty much self explanatory but I want to explain it, just in case. Due dates are specific set dates that you must pay a minimum balance or pay it off in full by that set date, otherwise interest and late fees may be applied.
- Minimum payment - This is the minimum balance that you must pay each month for your balance on a credit card. Minimum payments should be avoided because that minimum payment only covers interest fees for that month and a very little portion goes towards your actual balance.
Amazing Book on Improving Your Credit Score
One of the best books to read on how to improve your credit score. I have used it and recommend it to everyone.
Improving Your Credit Score
This is probably the most debated topic across the internet. There are tons of ways for someone to improve and raise their credit score quickly and efficiently, I do not mean overnight, though.
Here is a list of my recommended ways to improving your credit score (be advised that every time you get denied for a card will lower your credit score):
- Obtain a store charge card - Do not go out and apply for 10 store charge cards, but pick your favorite store that you shop at and apply for a charge card. Charge cards are NOT credit cards and they work differently, meaning that you can only use this charge card at the store you got it in. Let's say you get a Kohl's charge card, you will only be able to use it at Kohl's and nowhere else. More than likely, you will be approved with a $200 to $300 credit limit. Every time you shop at that particular store, use your charge card and pay it off in full before the due date arrives. This way you can establish a payment history while keeping your amount of credit owed to a minimal.
- Apply for a credit card - This is the easy step that most people mess up on. If you have bad or normal credit, you can not expect to get approved for a top of the line credit card. Go with something basic and do not apply for 5 different cards, the website link on the bottom is the best place to find the perfect credit card for you, be sure to check it out. I would recommend getting a card with rewards, that way you will be rewarded for using the credit card. One of the best credit cards to start using and being able to improve is Capital One and they can be found using the link on the bottom of the page. Once you are approved, use it as much as you can, but do not go close to your card limit. Let's say your credit card limit is $1,000, do not go and max your credit card, that is considered a big bad red flag in the financial industry. In this case, never go above $800 in a given pay period. And ALWAYS pay the full balance on your credit card, if possible. This way you are showing the credit card company that you are consistently using their card and are paying the full balance on time. There are no interest fees when paying your balance in full. However, if you cannot, than you will be charged high interest fees.
- Do not rack up debt - Let's be honest, credit cards are tempting to have as we love the feeling to buy stuff and swiping our cards, without actually paying for the stuff right there. I've seen hundreds of people do this, rack up debt and when the bill comes, they have no way of paying for it. This is my suggestion, when buying things with your card, think about tomorrow. Meaning, see what bills will come this month and how much income will you have coming in. Will that income be enough to cover your bills and pay for the stuff you are buying? The answer to that question will let you know if you can afford the stuff you are buying.
What is your credit score rating?
Hopefully, if you follow the steps outlined within this article, you should be able to effective raise your credit score within the next couple of months. Charge cards and credit cards are very good for anyone looking for an easy and quick way to improve their credit rating.
When your credit limit is increased, that means your credit rating has increased as well.
I hope you take advantage of this free article and tell you family and friends about it. I hate to see people go in debt due to credit cards.
Free Credit Score
- FREE Credit Score From TransUnion
Check your free credit score and see how lenders view you. Your free credit report includes in-depth credit analysis and credit history all absolutely free