If you want to use credit or get a loan someday, you should work on raising your credit score. It can take a while to earn a good credit standing, and for the most part, that’s how the game is played: with patience and good behavior.
But there are a few tricks to make it easier or faster to increase your credit score.
Use the Buddy System
If you have no credit or can’t get a credit card on your own, explore the option of becoming an authorized user on a credit card. What you do is ask a primary cardholder, like a family member or significant other, if you can get an authorized card in your name on their account. Keep in mind that some scoring systems may give less weight to authorized user accounts than they do to primary accounts, but you would still stand to benefit from them.
While this can be a great way to add payment history to your credit file, it can be a delicate, high-stakes strategy. First, the primary cardholder must be willing to add you to his or her account, and even though this person can be anyone, you should only tie your credit to someone you deeply trust.
This is especially important for the primary cardholder. If you add an authorized user to your credit card account, and that user runs up a huge bill, you’re held accountable for it, and your credit score will be affected by the high debt levels or missed payments.
Adding your child as an authorized user on your account can help them build credit from a young age. In fact, the authorized user gets credit for the whole account history, not just the point from which they’re added to it. Not only does that establish a credit history, it increases the average age of accounts on your credit report, which is also an important factor in credit scoring.
Primary cardholders should keep in mind that their actions will affect that user. You don’t want to trash your kid’s credit by adding them as an authorized user to an account that’s maxed out or delinquent.
Pay Often
To get a great credit score, you should use as little of your available credit as possible — many experts recommend keeping your credit utilization lower than 30%, and 10% is even better.
That’s a huge bummer if your only credit card has something like a $500 limit. Even if you can afford to use more than 30% (or all) of your available credit, you shouldn’t, in order to protect your credit score.
If you want to use your credit card a lot but don’t want to hurt your credit utilization rate, consider making multiple account payments each billing cycle. You won’t know when the credit card company will report your balance to the credit reporting agencies, so paying quickly and often will keep your reported balance very low.
FAQs
Q: Can becoming an authorized user on someone else’s credit card improve my credit score?
A: Yes, becoming an authorized user on someone else’s credit card can help improve your credit score. It allows you to benefit from their positive payment history and can help you build credit.
Q: How can I keep my credit utilization low if my credit card has a small limit?
A: If your credit card has a small limit, it can be challenging to keep your credit utilization low. However, you can make multiple payments throughout the billing cycle to keep your reported balance very low.
Conclusion
Improving your credit score is essential for accessing credit or loans in the future. By using the buddy system and becoming an authorized user on someone else’s credit card, you can add positive payment history to your credit file. Additionally, paying your credit card balance often and keeping your credit utilization low will contribute to a higher credit score. Remember to practice responsible financial habits to maintain a good credit standing. For more information on personal finance, visit Instant Global News.