Frequently Asked Questions About the Self Credit Builder Process

Andrew Reyes
brown leather wallet on table

Everyone wants to be able to purchase what they want and need without having to jump through a lot of hoops to get it. You not only need sufficient, sustainable income but also must practice good self credit builder habits. No matter how much money you make, true financial freedom starts with having a good credit score

You can enlist a financial advisor or a credit counseling service to help you build or repair your credit. These services can be convenient, but they also charge you for actions you can easily take yourself. Armed with a little basic credit knowledge, you may be surprised how easily you can establish or boost your own rating.

Table of Contents

Why Is Creating Your Own Self Credit Builder Process Helpful?

an agent explaining to a client and graphic of self credit builder image in the foreground

There are many organizations out there designed to help consumers rebuild their credit. Unfortunately, many of these groups toe the line of propriety when it comes to doing what is actually in their customers’ best interest.

The Credit Repair Organizations Act offers some protection by ensuring that these companies do not give out false information or take payment before the service has been provided, and this law goes a long way toward protecting people who are already vulnerable due to a low credit score. There’s not much that a credit repair company can do for you, however, that you can’t do on your own.

Creating your own self-credit builder process puts you in control. You can monitor your credit and formulate a plan to pay down your existing accounts. Taking responsibility for your own credit repair process saves you the cost of having to pay someone else to do it. That’s money that you can then use to pay off some of your debt or open a secure line of credit, which can get you closer to your credit goal.

Why Is Good Credit Important?

Many people apply for credit cards and max them out or miss payment dates without thinking about the impact on their credit scores. However, it becomes clear that a score near or above 670 is better when they apply for a loan. There are several benefits of having good credit.

Loans and Services

Your rating can affect whether you are approved for a loan as well as the amount of money you are eligible to borrow. Lenders and service providers want to make sure that you can actually make the monthly payments for what they’re offering, so it’s important to have a reliable self credit builder. There are several types of loans and services that are easier to get with a high score:

  • Auto loan
  • Mortgage
  • Business loan
  • Utility services
  • Rental agreement

Good Interest Rates

The best deals go to borrowers who have demonstrated long-term, responsible habits. You may technically be able to get a loan with a credit score that is below average but to get a reasonable interest rate, you need a good rating. The interest rate not only affects the amount of your monthly payment but also how much you pay in the long run and how long it takes to pay off the loan.

Employment Credit Checks

Some employers will check your credit history when you apply for a job. This happens most frequently in high-security positions where the demonstration of fiscal responsibility is vital. If you want to work in the financial sector or in a high-level leadership position, the employer may be hesitant to hire you if you have a lot of debt, particularly if the salary being offered would make paying it off difficult.

What Factors Impact Your Credit Score?

Lenders use a specific mathematical formula to calculate your credit score. It doesn’t just look at one type of behavior, though. There are several factors that are used to determine your overall rating that is important to know as a self credit builder.

Debt Ratio

Just because you have available credit on one of your cards doesn’t mean you should use it. One of the main predictors of your score is your credit utilization ratio. This is the amount of credit you have used in your revolving accounts divided by your total credit line. A debt ratio that is 30% or lower is usually necessary for an excellent credit score.

Number and Type of Credit Accounts

All of your credit accounts factor into your overall score. It’s good not only to have more than one account but also to have different types of credit. A great rating doesn’t just depend on how you handle your revolving credit such as credit cards. Adept management of your car loans, mortgage payments, and student loans can also boost your rating. 

Age of Loans and Credit Accounts

Potential lenders want to see evidence of good habits over time. A longer credit history typically means a higher score. This calculation is based on the average age of your credit accounts as well as your oldest active account and your newest account.

Number of Recent Inquiries on Credit Report

Any time you apply for a new loan or credit card, a hard inquiry shows up on your report. A rush of several inquiries in a short amount of time is a red flag that can lower your credit score. It’s best to add accounts gradually and show consistent, responsible use before applying for another one.

Damaging Marks on Credit

Just as good habits can raise your credit score, damaging behaviors can lower it. There are several instances that can drastically reduce your credit rating for a long period of time:

  • Foreclosure on home
  • Personal or business bankruptcy
  • Collection on unpaid bills

How Do You Establish Good Credit?

If you have little or no experience with credit, you may not feel like you have a lot of options. You may have been turned down for a car loan or not be able to get a decent interest rate. Building a good credit score is easier than repairing a bad one, though. There are a few basic things you can do to establish a solid credit rating.

Pay Bills on Time

The best thing you can do is simply pay your bills by their due dates. This includes rent, utilities, tuition or any other regular charge. Even if you initially need a co-signer to get approved for these services, the outstanding payment history is still under your name and can be used in your self credit builder efforts.

Use as Little of Your Credit as Possible

Once you are approved for a credit card, your mind may automatically revel in all the spending power it gives you. Fight the urge to max out the card, though. Continue to spend within your means and only charge what you can pay off at the end of the billing cycle. This keeps your credit utilization ratio low and strengthens your rating.

Be an Authorized User on an Account in Good Standing

If you don’t have enough credit to get your own account, you may be able to be added to a partner or parent’s existing account. This also applies to expense account cards with your employer. Even if you’re not the one primarily responsible for paying the bill, you can reap the benefits of having your name on an account in good standing. 

What Can You Do To Boost Your Credit Score Quickly?

Building credit or repairing a bad rating takes time. You may become frustrated when you don’t see your score rise very much over the course of several months. There are some actions that can bump you up a few points in a relatively short amount of time, though.

Dispute Errors on Your Credit Report

You can access your credit report for free once a year. Take this opportunity to look over all the items in the report. If you see something that is not accurate, you can dispute it through one or all three of the credit reporting agencies. The removal of harmful errors improves your score.

Request Positive Reports From Accounts in Good Standing

It’s likely that you make monthly payments on several bills. For example, you probably pay rent or secure housing in some way. If you pay on time every month, ask your landlord to report you’re great track record to boost your credit.

Make Extra Payments on Credit Cards

Making an extra payment on your credit card each month can have several benefits:

  • Lower your overall balance more quickly
  • Demonstrate fiscal responsibility
  • Improve chances of increasing credit line

A lower balance improves your credit utilization ratio. If you have a card that promises a higher credit line after a certain number of on-time payments, an extra contribution may get you there faster. Overall, the more you pay off, the quicker your credit score is likely to rise.

What Long-Term Habits Repair Bad Credit?

Establishing and keeping a high credit score is a long-term process, and there is no easy way out that will be profitable in the end. Practice strong self credit builder habits until they feel like second nature. 

Track Your Credit Report

Don’t just look at your credit report when you think there’s a problem. Track it on a regular basis. You can get a free report from each of the three agencies once a year. That means that every four months you can check your credit score without it costing any money.

You may also have a credit card that offers a credit tracking service for free. If anything suspicious occurs, this service will alert you to check into it. Being able to know about the fraudulent activity as soon as it happens is well worth opening another credit account.

Save for an Emergency

Many people are great at managing their credit accounts until an emergency occurs. Then they use the card to replace a broken appliance or get necessary car repairs, and they suddenly have more debt. Instead, have separate savings account for such emergencies so that you don’t have to rely on revolving credit.

Secure a Co-Signer

Even if you can’t get a loan in your name alone, you may be able to get a co-signer with solid credit to help. Keep in mind that this choice makes your co-signer financially responsible for the loan if you fail to pay. The added pressure of protecting your relationship may be an extra incentive to make payments on time.

Open a Secured Line of Credit

Lenders and creditors are hesitant to approve accounts for people with nonexistent or low credit scores because it is a risky venture for them. A secured line of credit reduces their risk but can still boost your score. You can either apply for a secured credit card or a self credit builder loan.

What Is the Difference Between a Self Credit Builder Loan and a Secured Credit Card?

There are two ways to open a secured credit account. If you have a little money set aside, a credit card may be a good way to build your credit. Otherwise, a self credit builder loan is likely the better option.

A secured credit card functions like a debit card but helps you build your credit. The available money you have to use is based on how much you deposit. For example, if you put $500 toward the card to open the account, you then have that much money to spend. Your on-time payments then serve to boost your credit score.

A loan, on the other hand, helps you save up the money you want to borrow. It works similarly to a savings account. Once your monthly payments add up to the amount of the loan, the money is disbursed. Unlike a regular savings account, however, each payment helps you establish or repair your credit.

The self credit builder process may take a while, but once you know the steps you need to take, it’s pretty straightforward. As with any efforts you make to improve your financial standing, knowledge is the key to doing it right.

At Fiscal Tiger, we pride ourselves on offering quality resources to ensure that you are equipped to make good decisions. Peruse the wealth of information on the website to understand how you can establish and maintain good credit on your quest to secure your financial future.

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