Introduction
Building responsible credit is key to achieving many financial goals, whether applying for a credit card, purchasing a home through a mortgage, financing higher education, or even getting approved for an apartment lease. This comprehensive guide summarizes research-backed strategies for legally and ethically building personal credit based on core concepts from the personal finance education video “How people are running up a BIG BAG with CPN’s! [New Method]”.
While the video discusses utilizing alternative credit profiles known as CPNs (consumer privacy numbers) along with trade lines to rapidly build synthetic credit histories, the focus of this piece is exclusively on authorized methods for credit building using your legal name and identity. CPNs carry significant legal and financial risks if caught, and are not endorsed nor recommended to readers under any circumstances.
Instead, this 2000+ word guide delivers an extensive overview of legitimate techniques to take control of your finances and meet credit goals through ethical practices over time. Expect actionable tips, data-driven comparisons between options, expert insights into scoring models, best practice examples, and guidance for nearly any credit-building scenario, regardless of your starting credit knowledge.
Let’s begin boosting your financial potential through trusted and proven strategies.
Responsible Credit Building Overview
Legally building credit requires utilizing your own personal identity information, not acquiring trade lines tied to a separate credit profile like a CPN. Typically, the safest routes involve becoming an authorized user on the account of a financially-responsible relative, friend or partner to benefit from their good history. You can also start fresh by taking out a secured credit card backed by money you deposit, eventually upgrading to stand-alone unsecured cards reporting to bureaus.
No matter how you start, certain core practices are key:
- Make all minimum payments by every single bill deadline
- Keep individual and total balance below 30% of credit limits
- Apply for additional credit only after building current history for 6 months+
- Do not close your oldest credit accounts once established
- Check your actual credit reports for accuracy before major purchases
With consistent responsible use over 1-2 years, you can build “good” to “excellent” credit legally in your own name, according to official rating scales:
| Credit Rating | FICO Score Range |
|---|---|
| Exceptional | 800-850 |
| Very Good | 740-799 |
| Good | 670-739 |
| Fair | 580-669 |
| Poor | 300-579 |
Now let’s explore authorized strategies for earning each crucial point towards those 750+ “excellent” scores and beyond.
Monitoring Your Starting Point
Before building new credit, you must understand your current status via checking at least one credit report from leading bureaus.
AnnualCreditReport.com offers every US resident the right to one free annual report from all key bureaus. Monitoring just one bureau report before building credit still provides insight, but reviewing all three delivers the most complete snapshot:
- Equifax – One of the largest bureaus with deep historical data
- Experian – Major reporting agency widely used in lending decisions
- TransUnion – Influences many commonplace credit checks
Ideally check reports from each bureau all on the same day once yearly to track changes made through credit building efforts over the following 12 months without having to pay. New accounts and changes may take over a month to appear, so allow a buffer of six weeks after any credit applications or score-impacting activity.
Low or no score from lacking credit history need not discourage you! Follow authorized steps to earn points with each new responsible account and payment. Even individuals recovering from past issues like collections or bankruptcy can rebuild gradually over time.
Tip: Spread checking your free reports from the three agencies out every four months to monitor progress more times per year.
Now let’s outline routes to take based on goals from reviewing your starting credit status.
With Poor/Fair Credit: Rebuilding Through Secured Accounts
Those with poor or fair scores below 670 are often rebuilding credit after financial struggles impacted past payment history or resulted in collections or judgements. The path forward requires utilizing secured credit lines tied to funds you set aside upfront in deposit.
Secured cards backed by your money allow rebuilding credit through on-time monthly payments and light overall card usage without the risk of re-falling behind on debts. One example is the Discover Secured Card, requiring only a $200 refundable deposit while delivering all scoring benefits of a major unsecured card as you transition your status from poor to fair and ultimately back to good credit ranges.
In addition to secured credit cards, those recovering from very low scores may also need to leverage secured loan products requiring you to finance yourself by placing money on deposit in savings. Secured loan examples include options from creditors like Self and Credit Strong – both trusted sources that report reliably to all bureaus.
This allows not only making on-time payments on revolving credit card balances, but also properly managing installment loan debts paid down over fixed terms – together comprising the credit mix that scores best for approval odds.
No Credit or Young Credit: Become an Authorized User
Consumers who are new to credit scoring systems – including teens and young adults – often scientifically have a better shot at building excellent history by starting as authorized users on the account of a responsible family member or partner.
Nearly all modern credit scoring models allow the primary account holder to add others over 15 as an authorized user. This grants the ability to access and use the account, with all payment history also reflecting on the authorized user’s credit reports.
- As an authorized user, no deposit or application is needed like securing your own credit card. Instead, users benefit from simply being added to existing positive account history. This allows quickly establishing length of history needed for the highest credit scores by legally “piggybacking” the primary user’s years of responsible payments and credit management.
Becoming an authorized user presents as instant a short cut for strong credit foundation as any tip shared here. But AUs should also eventually over time meet issuers’ requirements to qualify as primary holders of standalone unsecured credit cards and loans reporting solely in their name – incrementally diversifying credit mix away from depending entirely on another’s responsible account usage and management.
Established Scores: Optimizing Mix of Accounts
Once you’ve built at least 6 months of responsible authorized user or secured account history, moderate or higher credit scores around 670+ qualify for unsecured credit – the pivotal step in diversifying your mix with both revolving (credit cards) and installment (fixed payment term) accounts.
But long before applying for additional accounts, first ensure your reports reflect flawless on-time payment histories on every existing account – late marks severely undermine new approvals. Also confirm balances hover below 10-20% of all limits.
Meeting these essential benchmarks allows focusing energy on optimizing account mixes through new unsecured lines. Weigh these optimized mix examples:
Young Credit Profiles
| Account Type | Example Product |
|---|---|
| Revolving | 1-2 unsecured credit cards |
| Installment | Used auto loan, personal loan |
Diversify from authorized user status by applying for student and/or secured cards to start. Then leverage 6 months of perfect repayment history into a fixed-term installment loan product like a credit builder loan or affordable auto financing from a reputable lender.
Established Profiles
| Account Type | Example Product |
|---|---|
| Revolving | 3-4 unsecured credit cards Retail credit card |
| Installment | Auto loan Personal loan Student loan |
| Asset Account | Mortgage |
Take unsecured card approvals up to a responsible maximum, continue perfect payment histories on all installment debts, and consider applying for mortgage pre-approvals from lenders even if not actively home shopping. Such hard credit check pre-approvals further diversify your credit mix for maximum long term scoring.
Pursuing installment loans strictly to influence credit scoring algorithms is rarely recommended over simply continuing timely payments on existing debts. But lines like Federal Student Aid often carry additional financial benefits that warrant consideration.
Maintaining Credit: Best Practices
You’ve built authorized history, added unsecured accounts, and diversified credit types reported across bureaus. Now to maintain momentum towards a robust 850 score and ideal approvals on future financing applications:
Always Pay Full Balances
While legally you only must pay minimums by due dates, paying in full provides ideal credit optimization in two ways:
- You completely dodge interest charges to maximize take home income
- Credit utilization has no impact on your scores
Utilization refers to the percentage of total combined credit limits across all accounts represented by your monthly balances. Even with perfect payment records, high utilization hurts scores in the short and long run.
Keep individual and total utilization below 30% by paying in full, but obtain higher limits where possible to further drive percentage down for maximum results.
Set Payment Reminders
Even missing a single due date can devastate otherwise strong scores and reverse months of careful credit building. Assign reminders through your secured online account portals, calendar apps, SMS alerts or other sources to guarantee on-time payments.
Consider enrolling in autopay directly through issuers as well, but still independently monitor statement balances each cycle in case of changes or errors that could cause missed payments if relying solely on autopay.
Only Make Big Purchases That Improve Credit
When leveraging credit for large purchases, ensure accounts utilized actively build your profile by reporting history to bureaus. For example, many popular retail cards fail to report – so won’t help scores long term. If unsure, ask issuers if they will submit your info before applying.
Additionally, minimize hard inquiries from loan applications over short periods unless essential for a major life change like financing education, vehicles or housing. Avoid unnecessary financing that won’t vastly improve credit through history optimization and mix diversification. Reputable sources agree limiting inquiries to fewer than five yearly.
Retain Long-Standing Accounts
A key factor in exceptional scores involves maintaining positive history on your oldest accounts once established early on. Some may advise closing unused cards or old loans no longer needed. But retaining these lines keeps your length of history maximized across reporting bureaus, offsetting the temporary score drop of opening new accounts.
Continually Check Credit Reports
We opened by reviewing reports to identify starting statuses. Maintain the habit by checking your records quarterly, ensuring no errors like duplicated delinquencies, fraudulent activity or mis-categorized account types undermine your progress. Dispute errors aggressively to guarantee precision in this crucial personal data.
Proper monitoring and management delivers optimized scores for years of ideal approvals well beyond initial building phases.
Summary: Trusted Credit Building from the Ground Up
Constructing responsible financial foundations using one’s own legally-verifiable identity information requires diligence and patience, but blog articles need not overcomplicate authorized strategies open to all. Begin with the basics below:
- Obtain free credit reports to understand your starting point
- Rebuild using secured products if recovering from past struggles
- Quickly build through authorized user status in early stages
- Diversify with both installment and revolving accounts over time
- Continually monitor credit data for optimizations
The recommendations above allow people from all backgrounds – from no credit or poor scores to already-established profiles – to maximize responsible credit building for long-term financial security. That wraps our comprehensive expert overview!