Building positive credit history can be extremely tricky if you're just starting or trying to rebuild your credit. Having a financially secure job or hefty savings balance is not enough to boost your credit score automatically. Instead, lenders use your credit score to help them evaluate your repayment capacity. But what if you're part of the 'credit invisible' – you're starting your financial journey after graduating school, have used only cash the majority of your life, or have recently moved to a new country with no way to transfer the previous history? The good news is there are many easy ways to build your credit history and boost your credit score.
1. Build your credit profile
Your 'credit visibility' increases when you have multiple credit accounts. This is because credit bureaus calculate your score based on the number of open and active credit accounts under your name. In addition, financial tools like One's fee-free Credit Builder can help boost your credit visibility when consistently used while helping raise your credit score, too.
2. Hard pass for hard inquiries
Hard inquiries happen when potential lenders access your credit report in response to a loan application. Hard inquiries hamper credit scores and stay on your credit report for up to two years! While unavoidable for the most part, you can limit the number of hard inquiries (limiting the number of loan or credit card applications) to cushion the impact on your credit score.
3. Make frequent micropayments
Credit bureaus do not consider your payment frequency while calculating credit scores but making late payments will hamper your history. Making frequent micropayments at least twice a month can help secure minimum payment dues, reduce outstanding balances, lower credit utilization rates, and boost credit scores.
4. Dispute reporting errors
Monitor your credit reports regularly to spot identity thefts and inaccurate or incomplete information. You have the right to dispute reporting errors with both the credit agency and the business that reported the erroneous information. Send your complaint in writing with supporting evidence, and if they confirm the information reported is inaccurate, they are bound to correct the mistake free of charge.
5. Set up automatic bill payments
Making timely bill payments can give you a significant credit score boost. While missing even a single payment is sure to hurt your score. Setting up automatic bill payments through the service provider's payment system allows you to avoid late payments, late fees, and delinquency. Turn on Pocket Protector to help cover in case you don't have a sufficient balance in your Pocket to fund these payments.
6. Keep old credit accounts open
The older your credit accounts are, the better it is for your credit history. Maintaining multiple credit accounts allows you to lower your credit utilization rates. When paired with excellent payment histories, it can give you a major credit boost and help raise your credit score. Counter-intuitive as it may seem, closing that hardly used old credit card account will, in fact, lower your credit score!
7. Apply for a secured credit card
If you do not have any prior credit history or are looking to rebuild, it's best to apply for a secured credit card to build your credit profile. A secured credit card, like Credit Builder, is guaranteed by an upfront cash deposit. The credit limit equals the cash deposit made, so you can add as much or as little as you'd like. It works like any other credit card, and it will help raise your credit score with every automatic payment. After raising your credit profile and growing your financial confidence, it might be time to graduate to an unsecured credit card.
8. Make payments strategically
Revolving debt like credit cards and personal line of credit accounts have a high impact on your credit score. Making strategic payments to revolving debt accounts helps maintain low balances, lower credit utilization rates, and raise credit scores. You can, for instance, pay down the credit card with the highest interest rates or the highest credit utilization ratio first to give yourself a significant credit boost!
9. Avoid late payments
Late payments hurt your credit score and stay on your credit report for seven years! Whether installment debt (mortgages, car, or student loans), revolving debt, or utility bills, missing or making a single late payment is guaranteed to dent your credit score. However, keeping calendar reminders, using Scheduled Transfers with automatic bill payments can help you make timely payments and in turn, help increase your credit score.
10. Increase your credit limit
The higher the credit limit, the easier it will be for you to maintain a low credit utilization ratio (CUR). An easy way to help raise your credit score would be to add a qualifying direct deposit to your One account. Qualifying paycheck direct deposit customers can access Credit Line in their One account. It works just like a credit card, and you can easily borrow money at an industry-low 12% APR⁑. In addition, Credit Line can be a built-in safety net in the background while you continue the same spending levels and not use the increased limit unless you need to. This is a better alternative than a traditional credit card inquiry to raise your limit because it could lead to a hard inquiry. While this can help lower your credit utilization rates, an application for a traditional credit card limit increase could ding your score. Therefore, it's best to weigh the pros and cons before applying for a raise in credit limits with your traditional credit card.