This article is for anyone trying to build credit or fix credit in the United States.
Easy Ways to Build or Fix Credit
Building your credit is a right of passage. This is the first step towards becoming a full-fledged ‘adult,’ but it can be pretty confusing to start. What is credit? How do I build credit? How do I fix my credit?
Why Didn’t I Learn About Credit in School?!
These are all very valid questions and I’ll go over the important details about how to build credit and fix credit. This is just a general overview and you can find a more detailed explanation, videos, and resources in my Money Master Class.
What is Credit?
According to Experian, “Credit is the ability to borrow money or access goods or services with the understanding that you’ll pay later. Lenders, merchants and service providers (known collectively as creditors) grant credit based on their confidence you can be trusted to pay back what you borrowed, along with any finance charges that may apply.”
Essentially, ‘credit’ is how creditors gauge your trustworthiness as a borrower.
If you’re just starting out on your journey, check out my Beginner’s Budget Dashboard.
It’s a Google Sheets template that tracks your expenses, income, investments, savings, and more! There’s even a free video tutorial to help you get started.
How to Build Credit
Building Credit – Step 1:
The very first step to building credit anywhere in the world is to open a bank account. If you’re an expat, you’re likely going to need proof of residency (i.e. a visa or residency card) before you can complete this step.
Think of this as a way to ‘get your foot through the door’ because a bank account establishes identity, trust, and paves the way for you to get a credit card or loan in the future.
Building Credit – Step 2:
Option 1: If you have little to no credit or even bad credit, you can start with a ‘secured credit card’ from a trusted bank – not a retail store.
Retail stores don’t always report on-time payments to the proper credit bureau in your country. Sorry, Victoria’s Secret!
A secured credit card requires a cash deposit. This lowers the risk to the issuer/bank.
The deposit is usually equal to your credit limit, so if you deposit $500, then your limit is $500. This is different from a prepaid card; a prepaid card won’t help you build credit.
Option 2: Have someone with good credit (like a parent) co-sign on your credit card so you can start building your own credit. Be very careful with this option as your co-signer will be on the hook for any of your debt.
Beware of hard credit inquiries! This happens when you apply for credit and it impacts your score.
If you’re getting rejections, this doesn’t impact your score, but the hard credit inquiry for each application does so slow down and reassess.
How to Fix Credit
There are a few ways to improve a low credit score.
1. Become an authorized user on someone’s credit card who has a good credit score. This is the quickest and easiest way, but the co-signer does bear serious risk.
2. Getting additional lines of credit (i.e. credit cards, small car loans, mortgage) from a reputable, well-known bank to build different kinds of credit lines. No retail cards. No payday loans.
3. Avoid getting new credit regularly. Only apply for new credit when absolutely necessary. There is no reason to have more than 3 or 4 credit cards, even if you’re trying to build credit.
4. Minimize your credit card utilization and stay under 10% of your limit. For example, if your credit line is $1000, then your balance should remain under $100 at all times.
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Thanks for Stopping By!
I hope this article was helpful for you and your specific situation. You can always DM directly on Instagram if you have questions and I’ll try to help as much as possible.