Want to learn how to build credit scores without taking on more debt?
Well, today, I'm going to teach you how to do it and reveal the secrets of nontraditional credit!
It's probably not surprising when I say the credit system is complicated!
If you want credit, you need credit. But you can't get credit unless you have credit. If you use too much credit or not enough credit, no lenders will trust you with credit. What the f**k?!
All this complexity brings confusion, but it also means there are millions of loopholes and little tricks that you can use to work the credit system.
Most people think the only way to build credit is to borrow, make regular payments, and stay in debt forever. But that's not true. Times are changing. There are traditional and nontraditional ways you can build credit without taking on more debt. And today, I'm going to teach you exactly how to do it.
HOW THIS RELATES TO US
For those of you still new to credit repair, "credit scoring" is a system that lenders, creditors, landlords, and other entities use to evaluate your creditworthiness.
Credit scores range from 300 to 850, and the higher your score, the better your credit standing.
If you need a more detailed breakdown of credit reports and credit scores, you can download my Free guidebook: 7 Simple Things to Increase Your Credit Score.
THE THING TO REMEMBER
Credit scores are calculated using five separate categories that each weigh differently on your score. Payment History is 35% of your credit score, Credit Utilization or Amounts Owed is 30%, Length of Credit History is 15%, New Credit is 10%, and Credit Mix makes up 10% of your score.
With few exceptions, this data makes up your entire credit history and your credit profile. If you don't have enough data or enough recent data in your credit profile, you have what is considered a "Thin Credit File," and you're considered "Credit Indeterminable" or "Credit Invisible."
Some people prefer to be invisible to the banks and bureaus, and who can blame them? But having no credit history makes it almost impossible to get approved for new lines of credit. So, unless you have the means to buy cars and homes with cash, you will need to build some credit.
WHY THIS IS IMPORTANT
You can't use credit unless you have debt, previously had debt, or add new debt. But not all debt is bad.
If you review your finances and determine that borrowing a reasonable amount for something of long-term value, like your education, health, or a business investment, that's an example of good debt.
Bad debt is when you spend money you don't have on items that quickly lose value, like cars, clothes, or appliances, and you finance them using credit cards or payday loans with ridiculously high-interest rates.
Some economists say you should avoid debt and save until you can afford to pay for everything with cash. But paying with cash isn't a realistic option for most people. I don't know if you've been watching the housing market lately, but here in California, 330-square-foot homes are selling for a million dollars!
Going into debt is a fact of life. It's usually unavoidable. But if you're lucky enough to have a choice, you can still build credit without adding debt.
WHAT YOU NEED TO KNOW
There are time-tested methods and exciting new options for building credit.
Last year, in an effort to support equitable access to credit for more consumers, Experian, Equifax, and Transunion, announced they would begin allowing rent payments to factor into their credit report calculations.
Mortgage giant Fannie Mae also announced they would begin accepting these "Nontraditional" forms of credit in their loan applications.
This means if you pay your rent on time and in full, your positive payment history will help boost your credit score without adding any new debt.
However, this policy is still new, and it's not perfect. As of now, if you want your rent payments to influence your credit score, you will need to enroll in a Rent-Reporting service.
Most of these services require a monthly fee because you pay your rent to them. They process your payment, transfer it to your landlord, and then report the payment to the Credit Bureaus.
Now, I'm not going to recommend any of these Rent-Reporting Services just yet, but I'll do an episode soon where I share my thoughts and rank the Top 5.
REVIEW YOUR CREDIT REPORTS AND REMOVE ANY ERRORS
79% of credit reports contain errors. These errors can cause major drops in your credit score, so carefully review each report. Start by confirming all your personal information is up-to-date and accurate.
Next, thoroughly check the details of any negative items that appear on your credit report, including Late Payments, Charge-Offs, Collections, and accounts listed as "Settled," "Paid Derogatory," or "Paid Charge-Off." If any of these items contain errors, dispute them with the Credit Bureaus.
Most negative items can only appear on credit reports for a limited time, typically 7 to 10 years. If a negative item exceeds its time limit but still appears on your report, dispute it with the Credit Bureaus.
You can review your reports and remove the inaccurate information yourself, or you can hire a credit repair professional to do it for you. Either way, you will improve your credit profile without adding any debt.
But the best way to build your credit without taking on more debt is something you might have guessed.
ESTABLISH HEALTHY FINANCIAL HABITS
Let's say you already have a good amount of debt. If that's the case, you need to get your Credit Utilization below 30%. Credit Utilization means the amount of credit you're using compared to the total amount available to you. Lenders use this ratio to determine if you manage credit responsibly or if you overextend yourself. It has a huge impact on your credit score.
If your balances exceed 30% of your credit limit, pay them down as soon as possible. For example, if you have a credit card with a $10,000 limit, you should never use more than $3,000 at any given time, even if you pay your account off in full each month. And that little trick will boost your score.
You might be tempted to close old credit accounts. Don't do that!
Old accounts demonstrate your long-term stability and payment habits. Closing old accounts shortens your credit history and actually hurts your score. So, keep those old accounts open and use them sparingly to grow your positive credit history.
If you don't want to use an old credit card, cut it up or hide it away, but keep the account open. Your credit score will thank you!
Beyond this, check your credit reports regularly for any new errors or fraudulent activity. This will help you spot issues, maintain your score, and protect your long-term financial health.
MY FINAL POINT
You don't need to borrow money and live in debt forever to build credit and boost scores. The credit system is complicated, frustrating, and slow to change, but it's already adapting to our new economy. You can adapt with it. So learn the tricks and trends, and you'll reach your goals.
I'LL END BY SAYING
If you still need a Credit Repair Cloud account, check it out. It's the software that most Credit Repair businesses in America run on. Sign up here for a Free Trial!
And if you'd like to change lives and grow your very own Credit Repair business, check out our Credit Hero Challenge!
It's an amazing program, and we've got another challenge starting in a few days, so grab your spot right now at CreditHeroChallenge.com!
So take care, Credit Hero!
And Keep Changing Lives!