Last year, the average FICO score hit a record high at 703, which is well above the usual average credit score of about 680. In fact, reports showed that 59% of Americans had a credit score over 700.
Everything from student loans to credit cards and mortgage loans can affect your credit score, so it’s important to understand how to improve it. Whether you’re interested in building your credit from scratch or are looking to build credit without a credit card, we’ve got some credit building tips for you to follow.
Understanding the Different Types of Credit
What’s a great credit score? It depends. When you look at the score ranges for FICO, you’ll notice that anything above 740 is considered to be “very good.” Alternatively, 720 is the threshold for an “excellent” credit score according to TransUnion.
Credit monitoring app Float notes that 682 is considered a “good” credit score by most lenders. But, that number won’t make much sense unless you’re aware of how that score gets calculated. To understand that, it helps to understand that various different types of credit.
Here are the two most popular types of credit.
Revolving Credit: This type of credit is open-ended in that you’re not borrowing a set amount as you would with a mortgage loan or a student loan. You have a set credit limit but can choose to use however much of that you want each month and then pay back an agreed-upon amount. Credit cards are the most common example of revolving credit.
Installment Credit: When you think of the traditional loan, you’re thinking of installment credit. You borrow a specific amount of credit, such as a $20,000 student loan, and then agree to pay that back in installments.
How to Build Credit With No Credit History
Want to learn how to build your credit with no credit history? This is the case for most younger adults who are still in school.
Sign Up for One of the Best Credit Cards for College Students
Student credit cards often come with fewer rewards than other credit cards. But, they allow younger adults to sign up by lowering the credit score requirement needed to open the account. This is one of the easiest ways to begin to build credit during college if you have no credit history.
Sign Up for a Secured Credit Card
People with bad credit or people with no credit can still build their credit with a secured card. They are the same as regular credit cards, but you’re essentially “securing” it by paying a deposit to open the account. Whatever the amount of your deposit will be your credit history. If you’re able to make payments on-time then, over time, the card issuer might upgrade you to an unsecured credit card.
Ask Your Landlord to Report Payments to Credit Bureaus
Sometimes, rent payments and utility payments can show up on a credit report. If you’re having trouble building your credit, ask your landlord or service provider to report those payments to all of the major credit bureaus.
How to Build Credit with a Credit Card
If you have a credit card but are having trouble building your credit fast, here are a few tips that might help.
Become an Authorized User
If you have no credit, it can be hard to sign up for your first credit card. If your parents, siblings, or trusted friends have a credit card, you can ask to become an authorized user on their account. If they have a low credit utilization ratio and make payments on-time, you’ll benefit from their usage of the open account.
Make On-Time Payments Consistently
The easiest way to build your credit fast is to make payments on time each month. According to FICO, about 98% of “FICO High Achievers” have zero missed payments. Set up a reminder in your phone or utilize a budgeting app to help you stay on top of your bills.
Keep Your Credit Utilization Ratio Low
Credit utilization refers to the amount of available credit you use each month. Generally, it’s a good idea if you can stick to using just 10% of your available credit each month. Credit reporting agencies look at this when determining your credit score. So, avoid charing large purchases to your credit card if you don’t plan on paying it off immediately.
How to Build Credit Without a Credit Card
Don’t want to sign up for a credit card but still need to build your credit card? There are actually ways you can build your credit without ever having a credit card (although that certainly helps).
Pay Your Student Loans
Chances are that you have some student loans (most Americans do). If that’s the case, make sure you pay them on time. In fact, student loans can actually really help you build credit over time. Since the length of your credit history is so important in determining your credit score, having a student loan account open from the age of 18 will mean that by the time you’re 25, your credit report will show seven years of credit activity.
Take Out a Small Auto Loan
It’s always better to avoid loans in general if you can, but if you’re interested in building your credit, you can take out a small auto loan and make on-time payments each month. Make sure you’re aware of the interest rate, however, along with loan fees.
Secured loans are another great option to look into if you need to build credit without a credit card.
Earn Cash for Credit Payments with Cheese
While working to build your credit, it helps if you’re able to find easy, unique ways to save extra cash. Doing so will ensure that you have the money you need each month to make your loan or credit card payments.
If extra savings are what you’re after then there are few better options than the Cheese Debit Card.
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