For a quick summary, this is how credit agencies grade you. Credit Karma conveniently shows you these things as well:
FACTORS THAT IMPACT YOUR CREDIT
- Credit card utilization = total credit card balances / your total credit card limits
- On-time payment percentage = your on-time payments / your total payments
- Derogatory marks = open accounts in collections + negative public records marks
- Age of credit = average age of all open credit accounts
- Total accounts = open accounts + closed accounts
- Credit inquiries = hard pulls (credit cards, some banks, and Comcast)
If you want to rapidly, and aggressively build your credit, you need to focus on the things you can control.
Also, you should make sure you focus on the high impact factors.
The three high impact areas are:
- Credit card utilization
- Payment history
- Derogatory marks
Credit Card Utilization
A lot of people choose to wait until their statements come to pay their bill. This makes sense because you don’t owe interest on it until after the payment due date, so why would you pay early? The simple reason is that your goal here is to increase your credit score drastically and a big factor is utilization.
Again, utilization is total credit card balance / total credit card limits. So if you have a $500 limit and you spend $200, you’re at 40% utilization. That’s in the fair zone. Not bad per say, but not great. This is especially true if you have the money to pay for it anyways.
My strategy is to pay off your credit card every few days; this ensures that utilization stays at the excellent range (you can keep the balance at $1 if you’re worried that they won’t report your $0 balance to the credit agencies). Let’s say my balance after a week is $100 from groceries and lunches. I’ll pay that off BEFORE my statement even comes to keep my utilization near 0%. This has the dual benefit of ensuring that your payment history category doesn’t get screwed up.
This strategy alone helped my credit score skyrocket from 0 to 760, all in less than a year.
This seems pretty straightforward but PAY YOUR BILLS. Even one missed payment can negatively affect your credit for a long time. For example, if you have one card with six months of history (you’re 6/6!). If you miss a payment in month 7, you’ll be 6/7. Or 85.7%. This instantly puts you in the “very poor” category for a high impact category and can make it extremely difficult to establish your credit.
Ways around this are to set up auto pay, set calendar reminders to pay your bills, or to pre-pay. I would recommend pre-paying to remove this risk (more on this below).
If you have missed a payment, I would contact your bank to see if you can get it removed. Some banks will do it as a courtesy once they get paid. If you get a hit, you have nothing to lose.
To reiterate the first sentence from payment history… PAY YOUR BILLS.
If you’re an international, this shouldn’t be a problem area for you since you wouldn’t have had the chance to default on a loan previously.
If you’re working to improve your credit, I would reach out to the bank and repay the loans. If you go the bankruptcy route, it takes seven years for the derogatory marks to disappear. Even then, you’ll likely have trouble getting another credit card or loan from that financial institution. It makes sense though, if you screwed Chase / Bank of America / whoever, out of $5,000, they have the right to not lend to you in the future.
Age of Credit
You have little control over this factor other than just waiting it out. If you’re an international, I would recommend that you keep yourself at one card because of Chase’s rules on credit cards.
Total accounts are, again, a category you can’t control, and I wouldn’t worry too much about it.
Interestingly enough, a lot of people get this category confused. The average person assumes that someone with a lot of credit cards must have money troubles. While that might be true for some individuals, that’s not how credit agencies (and finance savvy individuals) view it. Instead, the idea is that the more credit cards you have, the better you must be at managing money. To get into the good category, you need 11–20 credit products.
I would not be overly worried about this category since it’s part of the process. The primary concern is applying for cards you know you’ll get rejected for and rack up a ton of inquiries for no reason.
I’ve seen people who keep applying for premium credit products like the Chase Sapphire Reserve and get rejected. After asking them about what their credit looks like, they tell me they’re new to America and don’t have a credit file. These end up being pointless credit hits.
Tying It All Together
The secret to aggressively building your credit is simple: pay your credit cards off in full and keep the balance near zero.