Some of you may have already read my previous article on how to build credit faster, but I mentioned there that there are several methods to build credit and I didn’t want to make that article too long.
So I wrote this separate article to provide more helpful methods to help you build your credit score.
There’s no particular order in which you have to read these articles. They are equally helpful in whatever order you read them, but I highly recommend you to go read that one as soon as you’re done with this one!
You’ll be glad you did because after you implement what you’ve learned on this website, you will see your credit score build higher and higher as time moves forward. And you’ll be many steps closer to financial freedom.
Without further ado, let’s learn how to build credit faster with these 4 EXTRA methods.
Avoid Consecutive Hard Pulls
Also known as a hard inquiry, a hard pull takes place whenever you apply for a loan or credit card, and the issuer has requested to look at your credit file. They do this to determining how much risk you pose as a borrower.
Unfortunately, every time they have to pull this information, this inquiry shows up on your credit score and it generally hits it negatively. You’ll often take a hit of 10, 20, or sometimes more points for a hard pull on your credit score.
You want to avoid having multiple hard pulls on your credit in a short period of time because it takes some time for your score to recover from one.
Let me give you an example, let’s say that you plan on buying a house this year. Since this is going to take place within the short term, you don’t want to be applying for other things that may require another credit inquiry, for example, buying a new car.
If you apply for a loan to buy a car and 3 months later you apply for a mortgage, your mortgage lender will see this dip in your score instead of seeing your higher credit score prior to the car loan. Thus, your chances to get approved for the mortgage are now lowered, AND your credit will take another hit and go further down because you had another hard pull on your credit from the mortgage lender.
If you’re planning on making big purchases soon, plan ahead. Make sure not to make a bunch of purchases so consecutively. More than just hurting your score, they’re probably becoming toxic spending habits.
Dispute Possible Errors
Sometimes, errors are made on credit reports and it is important to point these out and dispute them with your credit bureau.
This is actually something that personally relates to me. A few years ago (when I was 19), someone applied for a credit card using my social security number.
In other words, I had been a victim of identity theft and I had no idea. Since at the time, I did not like credit and I was a big Dave Ramsey follower, I never bothered to check my credit history because I didn’t use credit.
It wasn’t until a couple of years later, when I was 21, that I made the choice to get a credit card after learning about their benefits. When I was applying for credit though, I wasn’t having very much luck with approval. It wasn’t until I got accepted that I checked my credit and saw that there was a credit inquiry for a credit card almost two years before.
The first thing I did was call the Equifax credit bureau to dispute the issue. To summarize what took place, the issue was settled and I was able to get it off my credit report. They mentioned that it wasn’t a significant issue affecting me anymore because I almost passed the two-year mark since the inquiry took place. Nonetheless, it was good to take that inquiry out of my report as it wasn’t done by me.
A lot of people aren’t aware that simply disputing issues with your credit bureau is a simple solution to your problems. Some people even like to write letters to the credit bureau to dispute errors. There are actually templates online to help you do this. Take advantage of them!
It will save you a big headache and I can say that from experience.
Get a Credit-Builder
This isn’t an option that I would personally advocate for but it’s on this list because it might be a good option depending on your individual circumstances.
This is not a traditional loan. A credit-builder loan is an option that helps you save money while you build credit. This is how it works: the lender will lend you a set amount of money, typically $1,000 or less. This borrowed money is set aside in a secured savings account or a certificate of deposit (CD).
These loans typically have a repayment term – with an interest of 6% – 16% – of 6 to 24 months, so it’s a short-term loan.
To get the most of these loans to build your credit, you want to complete the entire term and make all of your payments on time. Otherwise, its purpose will not be served.
This is a good option for those who have no credit to start with, and it gives you a few extra bucks at the end of the term that you may not have even planned on saving.
There are two reasons why I don’t like these loans. One reason is that the interest they charge is money that will not come back to you. The reason why is the second reason I don’t like these loans, and is that the interestest rate will never be lower than the interest that the savings account (if they offer anything) or CD offers you.
I would simply go with a secured credit card to start building credit, but I understand that there are individual cases where this may not be possible. If that happens to be you, this is an alternative for you to build credit!
Get a Co-Signer for a Loan or Credit Card
If you have low to no credit, you’re not going to have very much luck applying for a loan or a credit card. A method to help you out with this is to get a co-signer to help you get approved.
A co-signer is a person – such as a parent, close family member, or friend – who is responsible to pay back the loan if you default on it. This can benefit both you and your lender because it means they are taking on less risk and you have more chance of approval.
Typically, a co-signer is widely acceptable for car loans. However, if you’re looking for something else like a credit card, only some credit cards will allow you to have a co-signer, others might not.
Having a co-signer for a loan or credit card will help you obtain a larger credit line to help you build your credit, as long as you’re being responsible with it.
Building credit is a great thing to do if you can manage it correctly. If you have uncontrollable spending habits, it’s probably best to just stay away from credit in the first place because it will do nothing more than dig you in a hole.
If you’re responsible with your credit, it can serve as a powerful wealth-building tool. If you haven’t already, go check out my other article on how to build good credit fast. It is an addition to this article.
If you have any questions or personal experiences, please leave them in the comment section below! I’m always happy to read and reply to each of you!