2. Use a Credit Builder Loan
Credit builder loans are offered by several banks and credit unions as an alternative to using credit cards to build a credit history. Before signing up for one, make sure they report to at least one of the major credit reporting agencies, since that’s the only way your loan will result in you getting the credit score you want. The way these work is the bank or credit union agrees to lend you money (typically around $500 to $1,000) that you must pay back via regular monthly payments, usually over a period of one to two years.
3. Try a Retail Store Card
With their often lower approval requirements than cards from big banks, retail store credit cards can be a great starting point for your personal credit-building journey, especially if you have little to no credit history to begin with. However, these store card offers are generally not as good as regular general-use rewards cards you can get elsewhere.
4. Dispute Negative Accounts on Your Credit Report
The credit bureaus allow you to dispute just about anything on your credit report. Dispute a late payment or collection account, and the credit bureau has 30 days to investigate it. If the creditor does not have the proper documents to verify the account or doesn’t respond at all, it will be removed from your credit report entirely. The credit repair industry is built on this; dispute negative accounts and then hope the credit bureau can’t verify it and therefore have to remove it.
5. Be Sure to Use Your Credit
Don’t go overboard in the other direction and try to protect credit scores by not borrowing or charging anything. The credit agencies rely on past payment history to gauge how borrowers will do in the future. If you don’t borrow, they have no information to rely on.
7. Keep Your Balance Low & Credit Limit
Focus on increasing your credit limit and keeping your balance low. Play it safe and target around a 5% to 10% utilization ratio (credit balance over available credit). Do this by requesting an increased credit limit online for each of your cards about every four months. It will be important, as your credit limit goes up, that you don’t take advantage of the limit increase. Continue to use your credit cards, but don’t max them out every month. Try to use only a small percentage of your credit limit (not exceeding 30%), and pay the balance off before the due date each month.
8. Set Up Revolving Credit
One of the biggest misconceptions about having good credit is that the way to obtain it consists of having no debt. This is not accurate. The best way to build a good credit score is to have some revolving debt and to keep your balances at less than 30% of your high credit. This means that if your max credit for a credit card is $1,000, then you would want to carry a balance of less than $300. As long as it is always paid on time, which is on or before the due date, you will consistently build a good credit score over time.
