Although it seems quite daunting, building your credit is actually fairly simple! First thing to do is get to know your credit profile, here we break down what you're looking at:

How Are Credit Scores Calculated?

Credit scores are determined by algorithms generally known as scoring models, that analyze your credit report from Experian, TransUnion or Equifax. Your score is determined from a scoring model, though there are many types. However, consumer credit scores do typically share a few similarities:

  • Your actual credit score is based on the information in your credit report.
  • Predicting the likelihood that a borrower will pay a bill 90 days late in the next 24 months is the main determinant.
  • A lower score indicates a person is more likely to miss payments on a bill, and vice versa.

Predominantly, lenders use credit scores calculated by FICO scoring models. The most recent versions of the generic credit scores range from 300 to 850, with a score in the mid 600s considered fair. FICO also calculates industry-specific scoring models, mainly used for credit card companies, home loans, and auto lenders that range from 250 to 900.

Taking into account that the same basic information is used to determine your scores, it will likely come as no surprise that any methods you use to improve one score will make a difference across all credit bureaus.

For instance, making your payments on time can help all your credit scores, while missing payments will have the opposite effect. On-time payments can help all your credit scores, while missing a payment will likely hurt your score across all bureaus. While there are many factors that can affect your score, here we will simply focus on how best to build your credit.

1. Pay Bills on Time

If you pay your bills late, there is no way to effectively build credit. This is because payment history is the single biggest factor that affects your credit scores, and negative items stay on your credit report for 7 years.

If you’ve missed a payment by over 30 days, call the creditor and arrange to pay up front, if you can. If not, set up a payment plan and ask if the creditor would be willing to consider ceasing to report the missed payment to the credit bureaus.

Even if the creditor won’t budge, it’s definitely worth getting current on the account. Every month an account is marked delinquent, it hurts your score. Although the impact of a missed payment does fade over time, taking proactive steps after a mishap can help reduce the damage more quickly and raise your overall score.

If you're simply not able to pay everything on time, the ability to prioritize your bills can be a game changer. Consider looking into financial assistance due to coronavirus, as well as other loan options (Which can help your credit even more, if you’re approved!

2. Make Frequent Payments

If you can keep your credit card balances down, it will help improve your credit. If you are able to make small payments (often referred to as micropayments) throughout the month, this will improve your credit utilization, which is another factor that can influence your score.

3. Use a Secured Credit Card

Another method that can be used to either build or improve your credit, is by using a secured credit card. This type of card is backed by a cash deposit; you deposit a predetermined amount of money and use it like a normal credit card. Your (theoretically) on-time payments will help your credit. Be sure the card you choose reports to all three credit bureaus, to reap the largest benefit.

4. Apply for a Higher Limit

When your credit limit goes up and your balance stays the same, it instantly lowers your overall credit utilization, which can improve your credit. Call your card issuer and ask if you can get a higher limit without a “hard inquiry”, which can temporarily lower your score. If your income has gone up or you've added more years of positive credit experience, you have a decent shot at getting a higher limit. Some issuers may also be willing to work with you due to hardships from the pandemic.

5. Keep Credit Cards Open

If you're in a hurry to improve your credit, be aware that closing your credit cards can actually make the job harder. When you close a credit card, you lose that card’s credit limit. When your overall credit utilization is calculated, they take this into account, which can lead to a lower score. Just remember to use the card on occasion, to keep it from being closed by the credit card company.

6. Mix it Up

If you have either only credit cards or loans, you may want to consider getting a type of credit you don’t already have, to boost your perceived worth as a client. Having both revolving credit and installment accounts (such as loans and credit cards), can boost your perceived worth to creditors.

7. Become an Authorized User

If you’ve got friend or relative with a long-standing record of responsible credit card use/a high limit, you may consider asking to be added to their account as an authorized user. This won’t affect the card holder almost at all, as you won’t need their account or credit card number for it to improve your credit! This option makes the biggest difference to a thin credit file, giving credit history and lowering your credit utilization record, which can carry a significant impact.

8. Dispute Credit Report Errors

A mistake on any of your credit reports could factor into a lower score. Taking the time to check might make a difference in improving your score.

A free report is your right,be sure to request on from each of the three major credit bureaus: Equifax, Experian and TransUnion. You can then check these reports for mistakes such as payments incorrectly marked late or negative information that should have dropped off your report by now.

After you've identified any errors, file a dispute to get them removed. The credit bureaus have 30 days to investigate and respond.

What's next?

  • Request your free credit reports so you can get to know your credit profile and history.
  • Look into ways to manage your credit, with or without a company that specializes in credit building.
  • Track your credit reports monthly so you always know if there are new ways to improve your score.