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May 16, 2023

The importance of good credit is essential to many things in life. You need it to buy a car, get a loan, or purchase a home. But how do you build credit if your credit report is a little blemished or you’re just beginning your financial journey? Does it take years, a lifetime, or is there a faster way?

In short, yes - there are several ways to build credit quickly. However, it would help to know what's used to calculate credit scores. That way, you’ll know which areas to focus on before moving forward.

What’s In Your Credit Score?

The FICO credit scoring model is the most prevalent among financial institutions. Approximately 90% of them use it to make lending decisions, and this score has five components:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • Credit mix (10%)
  • New accounts (10%)

HawaiiUSA members with Digital Banking get free, secure access to their credit score and credit report with My Credit Score. Simulations show you how different factors could impact your score.

As you establish your credit history and earn a credit score, or if you need to quickly rebuild your credit, consider these five strategies.

1. Pay off debt

Lenders evaluate your credit use rate to decide if you're a good fit for credit. It's the amount of credit you have used compared to the credit limit. The FICO credit scoring model also rewards consumers with lower credit utilization rates. Ideally, you want to aim for a 30% or lower utilization rate. Paying off credit card debt is a common way to improve your credit score.

Start by creating a plan to reduce your credit card balances. The debt snowball and debt avalanche are two popular debt reduction methods.

Here’s how they work:

  • Debt snowball: Continue making the minimum payment on all your credit cards. But pay as much as you can each month on the card with the smallest balance. Once it’s paid off, move to the next card and continue until all your balances are paid in full.
  • Debt avalanche: With this method, you’ll pay at least the minimum on all your credit cards. However, apply any extra payments to the card with the highest interest rate.

2. Pay bills on time, every time

Paying all your bills on time is vital to building your credit fast. A single delinquent credit account 30 or more days past due will likely result in a late payment. Unfortunately, late payments can drop your credit score. They also stay on your credit report for up to seven years. Contact creditors if you’re experiencing financial hardship and cannot pay on time. Request a payment arrangement to get back on track. You should also bring any past-due accounts current. Doing so helps avoid continued adverse credit reporting.

3. Review your annual credit reports

Review your credit reports from Experian, TransUnion, and Equifax. You can get free copies of your credit reports at AnnualCreditReport.com. If you spot errors, file disputes to remove them from your credit report. Otherwise, inaccurate or outdated information could drag your credit score down. If not removed, it will continue to linger on your credit report.

4. Apply for a credit card

secured credit card is another effective way to build credit fast. It’s designed for consumers with poor credit or no credit history. You’ll get a small credit line in exchange for a security deposit. It serves as collateral and is refundable when the account closes. (Note: The deposit is usually the same amount as the credit limit). Keep the balance low and pay on time to improve your credit. Some credit card issuers offer upgrades to unsecured credit cards. You demonstrate you can responsibly manage credit for a set period to qualify for an upgrade.

5. Get a small personal loan

small personal loan is another way to build credit fast. Apply for a loan amount not exceeding $1,000, and be sure to pay on time each month to build a positive payment history. Also, get a 12-month loan term or pay the loan off within this timeframe. Just be sure the lender doesn’t charge a prepayment penalty if you pay the loan off early. This option is only sensible if you have little or no credit and cannot access other forms of credit.  You’ll have to make monthly loan payments, and depending on your income, payments that could stretch your budget thin.

The Bottom Line

Rebuilding credit or establishing solid credit from scratch takes time. Still, you don’t necessarily have to wait several months or years to see results. Implement these strategies to take a step in the right direction. Use My Credit Score to check your score, report, and view insights on improving your credit health, or get in touch with a trusted Financial Coach at HawaiiUSA.