How to Build a Good Credit Score in 3 Simple Steps. Summary: How to get a 700 credit score with 3 steps in 12 months. If you're new to credit, this video will show the quickest way to build a good credit score.
Learning about credit can be daunting in the beginning. While credit is simple, it can seem as if there is too much to learn and not enough time and resources to do so. Instead of teaching you all there is to know about credit; I’m in favor of keeping things simple in the beginning. In this article, I’ll teach you how to use 3 steps to get a 700 credit score in 12 months. If you’re new to credit, this article is your quick starter guide on how to start building credit. For those of you that are rebuilding credit, you can use the 3 steps as well, but understand that it will take longer in your case.
To begin, lets briefly discuss the why behind the 3 steps. Your credit score is just a number that is calculated by a computer program. To calculate your credit score, this program looks for certain factors. If you understand the factors that it is looking for; you can manage those factors to your advantage. The 3 steps capitalize on the 2 most important factors that affect your credit: payment history and utilization. The great thing about being new to credit is that you have nothing negatively impacting your credit score. All it takes is managing those 2 factors and some time in order to reach a 700 credit score. Here’s how.
Step 1: Open a line of credit
To start building credit you must establish a line of credit. The easiest way to start that has an almost guaranteed approval rate is by getting a secured credit card. A secured credit card is one where you put down your own money for the credit limit that you want. For example, if you want a $300 limit, you put down $300. The lender will put that money on hold and issue you a credit card. They have a high approval rate, because there is little risk for the lender. If you don’t pay your credit card, they can just use the money you put down to pay it. The benefit to you is that they report to the credit bureaus like a normal credit card, and you can start building credit that way. I suggest you get a secured credit card with your local credit union. If you don’t have a credit union nearby, both Discover and Capital One have fantastic secured credit card programs.
Step 2: Make 12 on-time payments.
Once you get your credit card, you will want to start using it. I suggest you make small purchases in the beginning. Remember that whatever you spend on a credit card, you must pay back. Don’t think of your credit limit as being your money. Once you get your monthly statement, I recommend that you pay off your balance in full before the due date to avoid paying any interest. If you cannot make the full payment, at the very least, make the minimum payment. Since payment history accounts for 35% of your credit score, having even one late payment will plummet your credit score. You will find it impossible to get over a 700 credit score if you have a late payment.
Step 3: Keep your utilization low.
Utilization is also known as capacity. It is basically how much of your credit you are using. For example, if you have a credit card with a limit of $200 and you use $20 on it for the month, you have a utilization ratio of 10%. Utilization is equal to your balance divided by your credit limit. The lower your utilization, the higher your credit score. As a rule of thumb, you should keep your utilization below 30% for good credit and below 10% for great credit. Utilization is the factor that causes your credit score to vary month to month, because how much you spend monthly usually fluctuates.
As you can see, getting a good credit score is not that difficult. Your credit score essentially boils down to creating a history of on-time payment and keeping your utilization low. The 3 steps essentially guarantee that the most important factors of credit are handled. The 3 steps are fully in your control; the only you cannot control is time. So start now.
You can contact me at Lang@userfriendlycredit.com
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