Contrary to popular belief, it doesnt take years to build credit. If you know how credit scores work, you can achieve a good credit score in less time than you may think. With that in mind, heres what you need to know in order to build your credit as quickly as possible.

How credit scores work
Before you can learn how to build credit fast, you need to understand where your score comes from. There are several different credit scoring models, but the most popular is the FICO score, used by more than 90% of lenders.

Your FICO score is made up of five categories of information, with a weight assigned to each:

  • Payment history (35% of FICO score) — The single most important factor in your credit score is whether you pay your bills on time. Late payments, delinquent accounts, collections, and judgments can drag down this part of your score, and the longer you go without any of this derogatory information, the more of a positive impact this category will have.
  • Amounts owed (30%) — This doesnt refer to the actual dollar amounts you owe, as much as it refers to how much you owe relative to your credit limits and original loan balances. Keeping your credit card usage low and paying down loan accounts will boost this part of your score.
  • Length of credit history (15%) — This category uses certain information that tells creditors how long youve established credit. It takes into account when you opened your first account (even if its been closed), the average age of all accounts, and the age of your individual accounts, among other time-related information.
  • Types of credit in use (10%) — This looks at whether you have a healthy mix of credit accounts, such as credit cards, store accounts, mortgages, student loans, auto loans, etc. The theory behind this is that it shows how responsible you can be with any type of credit.
  • New credit (10%) — As the name implies, this factors in how many of your accounts were recently opened. If you open several new accounts in a short time period, it could hurt your score. Also included in this category are your recent credit inquiries — the number of times youve applied for credit. Only inquiries from the past year count, so it doesnt take long for this category to become all clear.

Good credit doesnt have to take long
As you can see, most of these categories can be positively influenced in a short period of time. Obviously, the length of credit history category takes years to capitalize on, and by definition the new credit category wont be stellar when youre just getting started. However, these categories represent just one-fourth of the total.

To establish an excellent payment history takes years, but you can create a good history fairly quickly. The actual FICO formula is a well-guarded secret, but you might be surprised how much of an impact a few months of on-time payments and no adverse information can have.

The Amounts owed category is perhaps the easiest way to have a quick impact on your credit score. Once you open a credit account, simply keeping your balance low as a percentage of your available credit is all you need to do. Experts generally say that usage of 30% or less is good, and lower is even better. People with the highest credit scores tend to use a single-digit percentage of their credit limits, so if you get a credit card with a $1,000 limit, carrying a balance of less than $100 could be a highly effective way to boost your credit.

Types of credit in use is a tough category to crack when youre just starting out. After all, you probably wont have a mortgage, auto loan, and several credit cards at first. Still, something is better than nothing, and if you can establish just a couple of account types (say, a credit card and department store account), you could see your score rise rather quickly.

So, while an excellent credit score takes years of responsible habits, it is possible to build a good credit score in a short period of time.

The best plan of attack
The best way to build (or rebuild) credit is to establish an account and use it responsibly. For those just establishing credit, this usually means getting a credit card, and there are several cards out there designed specifically for first-timers.

A secured credit card can also be an excellent way to get started. In fact, this is how I established my own credit years ago. Since youre required to put down a security deposit equal to your credit limit, its not difficult to get approved for these, even with a lack of credit history. They report to the credit bureaus just like a standard credit card, and tend to have more favorable terms than other starter credit cards.

Once you open an account, and use it with the credit scoring formula in mind, you might be surprised how much credit you could build in a short amount of time, which can make your large financial purchases like a house and car both easier and cheaper.

Can a Credit Card Improve Your Credit?

by Shelton on July 25th, 2015

filed under Student Credit Cards

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    Loan or Balance Transfer? What’s Best for Saving Money When Consolidating …

    by Shelton on July 24th, 2015

    filed under Debt Consolidation

    Debt consolidation is the concern of many people in the world. Consumers are trying the best they can put their bills together so that they can survive in this world full of economic troubles. Loans and balance transfers are two choices that consumers have for debt consolidation these days. Some consumers struggle with trying to decide which option is best for them. Both options have positive aspects and negative aspects associated with them. The following is some information on the benefits and disadvantages of both:

    Debt Consolidation Loan

    A debt consolidation loan is a solution that some companies offer to people who need to put all of their debts together. The lender provides the person with enough funds to cover his or her existing debt. The consumer then only has to worry about making payments to the consolidation lender instead of the various creditors from which he or she has received loans. One of the main benefits of a consolidation loan is that the borrower can receive a lower interest rate than he or she had with the original loans. One of the stipulations to a debt consolidation loan is that the borrower has to have a positive credit score to receive approval for the advance. There are bank loan tools online like calculators that can help you figure out a loan that would be right for you.

    Balance Transfer Option

    A balance transfer is an option that allows a person to transfer the balance of other debt to a new credit card. To obtain approval for a balance transfer, a person has to have a credit score that professionals consider to be “good.” A good credit score is one that is more than 650 points. Such a score will qualify the individual to obtain a balance transfer card. The balance transfer card allows the person to bring the balance of three previous debts to the credit card. The consumer will then pay his or her credit card bill as usual.

    The benefit of having a balance transfer card is that the consumer may have a credit line that exceeds the amount of debt that he or she owes. For example, the consumer may owe £1,000 in other debts, but the limit on the credit card may be as much as £5,000. The consumer can build his or her reputation while paying down the debt that currently exists. The negative aspect of having a balance transfer card is that approval requires a high credit score, and the interest rate may be a little higher than a consolidation loan interest rate.

    Consumers can decide which situation works best for them. Both options can help a person to get back to financial health and wellness.