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Q&A: How Do I Build Credit Fast?

Building good credit takes time: the longer you use credit well, the higher your credit score will climb. That said, there are some tricks you can use to build credit from scratch or improve your credit rating more quickly.

How do you build credit fast?A reader asks: I’m trying to get my credit score growing again. I’m in school full-time and work full-time, too. I have just one credit card – a Wells Fargo student card — that greatly helped my credit score when I first got it. However, in the last four months my score (from CreditKarma) has been stuck at 699. My only other credit accounts are student loans totaling $30,000. Is there anything I can do to grow my credit score faster, or do I just sit tight and hopefully something will change? – Selina

Answer: If you’re new to credit, there are a number of things you can do to speed up building a good credit score. You didn’t mention it, but I assume that:

  • You’ve paid your credit card on time every month and
  • You don’t have a big balance on it

(If that’s not true, focus first on timely payments and/or paying off the balance). But if I’m correct, you might actually consider getting a second credit card. You don’t have to use it very often (if at all), but adding a third account and a bit more available credit might help your score grow after a few more months.

Why more credit sometimes helps your credit score:

Credit scores are funny. I know it seems counter-intuitive that someone with more credit cards is a better risk than someone with just one.

But it’s true: to a point.

A good credit score is earned by managing credit well. Until you do that, the credit bureaus don’t have any way to say what kind of credit risk you’ll be. It’s a lot like safe driving. Insurance companies often give discounts to drivers who haven’t had a ticket or accident in a couple of years. But when you first start driving, you can’t get that discount because there’s no data to indicate whether you’re a safe driver. So showing you can manage a few different credit accounts is a good thing.

The second reason this will help is for what’s called your debt utilization ratio. This is the percentage of the credit limits on all of your credit cards that you’ve currently borrowed against. For example, if you have two credit cards with $500 limits, you have a total credit limit of $1,000. If you have a $600 balance between the two cards, your utilization ratio is 60 percent — you’ve used 60 percent of your total credit limit.

With utilization ratios, lower is better, and a high ratio will decrease your credit score. And it doesn’t matter if you pay off your balance each month or not – the metric is calculated using your card balances at the end of every month.

So there are a few ways to improve this number:

  1. Only use a small percentage of your credit line.
  2. Pay your card balances down before the closing of the statement cycle. (This will reduce the month-end balance that is used to calculate this number.)
  3. Increase your available credit.

If suddenly you get a new credit card with a $1,000 limit, now your total available credit is $2,000 and your utilization ratio becomes 30 percent instead of 60, which is better for your credit score.

A couple things to keep in mind: 

Just because two cards may be better than one, I would stop there for now.

As the result of a new inquiry on your credit report, your score might go down after you apply for a month or two, but in the long run it should go up.

You don’t have to do this; if you stay the course and pay on time your score will slowly creep up. You may also be able to ask Wells Fargo for a credit line increase which would have a similar effect.

At this point, however, I suspect that your short credit history is the biggest factor in your score, and it will just take a couple more years to see it jump significantly.

About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. Great tip. Even using your card and paying it off will help to boost your score.

  2. I also have a short credit history and I check credit karma every month or so. The really surprising thing to me is that having a non-revolving balance hurts your score. Id suggest not using credit cards for a month before applying for a mortgage… although I don’t actually know what im talking about. This has just been my experience.

    • David E. Weliver says:

      There’s some truth to avoiding credit cards before applying for a mortgage. Underwriters look at your credit card balances for the month or two before you apply and they reduce the monthly mortgage payment you can qualify for by your monthly credit card balances. So it’s best to either not use credit cards, or at least keep the balances low when you’re going to go through the mortgage process.

  3. Gordon Rennie says:

    Do you know of a free UK Credit Score provider

  4. Having your credit limit extended really helps. I was approved for a credit card with a $20k limit and my score jumped significantly after that… just make sure you pay off balance in full at end of month and don’t use more than 5-10% of the limit.

  5. David,
    Before I sign up for Credit Karma can you help me understand how doing so will impact my credit? I had thought that checking you credit (even through one of those ‘free’ agencies) would negatively impact your credit score. Is it truly reputable and truly free? Thank you!

    T

    • David E. Weliver says:

      Hi T,

      CreditKarma shouldn’t impact your credit score at all. When you check your credit it’s what the industry calls a “soft pull”. This is different than a so-called “hard pull” that lenders use when you apply for credit. Your credit report may contain a list of every “pull”, both hard and soft, but only the hard checks go into factoring your score.

      CreditKarma is free because — much like Facebook and Google — they run advertising on the site and can target those ads based on your credit profile. If you’re squeamish about having your info used in this way, that would be the only downside I can think of, but I’ve been using them for many and partnered with them on this site as an advertiser exactly because I liked their service so much. (Money Under 30 could make a lot more money promoting those sites that require you to give a credit card and cancel a service to check your credit score, but I don’t feel good recommending those places in 95% of situations).

  6. Thanks for the feedback David,

    I took your advice and got a second credit card with Discover. I am happy to say it’s been a very successful and valuable addition.

    To other college students interested in building their credit, I recommend the Discover Student Card.
    There is no annual fee . 0% introductory APR on purchases for the first 6 months. After that the APR will be from 12.99% to 18.99%, depending on your creditworthiness. My favorite reward is the 5% Cashback Bonus in quarterly rotating categories such as movies, restaurants, gas stations, department store, etc.

    Hope this helps others as much as it has me!

    Selina

  7. I currently have five credit cards, which currently don’t hold any balances and I have been thinking about closing a couple of accounts. Do you think closing them would seriously harm my credit score? What would be the benefit of keeping it open if any? Thanks!

    • David E. Weliver says:

      Hi Elise, I wrote on this topic a few years back here and here.

      Closing credit cards can actually make your score go down, especially if they are cards you’ve had for a long long time. Although it seems counterintuitive to keep accounts open that you don’t use (for security, simplicity, etc.), it can actually help your credit score. If you have a well-established credit history and a good score already, however, I wouldn’t let that stop you from closing a couple cards you don’t need anymore.

  8. Hello! My husband and I are currently trying to buy our first home for our family. We spoke to a lender in which we were denied due to my husbands score. He has one good line of credit with a max of 6000 and the balance is at the 30% mark. He also has a judgement from toll violations in 2009. We are currently trying to view our options in paying the judgement but we are curious if we try to settle for 60% or whatever they accept will it still hurt his score? I’m worried also if we apply for him to have a new line of credit to raise his score, and he gets denied.. It will harm him even more. Can u please advise any suggestions?

    • David E. Weliver says:

      Sorry to hear about the difficulties, Steph. The judgement on your husband’s credit report could be a problem, I’m afraid. The best thing is to pay it off if you can. Even if you pay it off, the judgement may still stay on the report for up to 7 years — although paying something is better than letting it sit unpaid. If you negotiate a reduced amount, make sure they agree (in writing) to report the claim as “PAID” to the credit bureaus, which may help.

      You’re right to be careful about applying for new credit. I would only do that if you delay getting a mortgage for a year or more, otherwise new credit will likely hurt more than it helps. Good luck.

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