Do you own your finances, or do your finances own you?

The easiest way to tell is to check your credit score. This is basically your financial grade in life. And having a great score makes almost all major purchases in life easier and cheaper (including cars, houses, and business loans).

On the other hand, a low score shackles you, putting serious limits on your ability to do what you want, when you want to.

In today’s article, I’ll be discussing some techniques you can use to raise your credit score as quickly as possible. (If you don’t have any credit and are starting from scratch, make sure to read the beginner’s section at the end.)

What Goes Into Your Credit Score?

What makes up a good credit score? Here is what financial companies look at:

Credit History

Your credit history demonstrates how solid you are at repaying debt over the long-term. Since keeping good credit over time takes a lot of discipline, if you can do it, banks feel comfortable loaning money to you.

The longer your (positive) credit history, the better your score will be. Which is why it’s good to start using credit as soon as you believe you responsibly can.

Utilization Rate

Your utilization rate is how much money you use based on your limit. So if you have a limit of $10,000, using $3,000 is a utilization rate of 30%.

Banks prefer to lend to people who utilize less of their available credit. So if you want to quickly raise your credit score, make sure you’re keeping your utilization rate under 30%.

On Time Payments

This is the bread-and-butter of your credit score. The longer your history of making on-time payments is, the higher your credit score will be. For this reason, it’s crucially important that you only use your credit card for purchases you know you can afford.

Treat it like cash. Don’t spend if you can’t pay it off. The system is designed to make going into debt as lucrative as possible for credit card companies. In other words, the second you pay your bill off late, you’re in their system, playing by their rules.

These are multi-billion-dollar companies who have spent untold billions on learning consumer behavior. Please do not think you can outsmart them. Borrow only what you can afford to pay back.

Credit Variety

Banks want to lend to people who have a long history of paying off a variety of loans. This means if you have a car loan, mortgage, or other loan and pay it off regularly, your credit score will increase faster.

What To Do If You Don’t Have Credit

Because of how important credit history is, the sooner you start the better. However, if you’ve never had credit in your life, it can be difficult to get started. So here’s what you do:

Go to your local bank and get a secured credit card. To get this card, you’ll need to pay a deposit usually of around $300. The bank holds onto this as collateral in case you don’t make your payments.

Use your secured card on small purchases throughout the month, and ALWAYS pay it off on time.

After 6 months, you can sign up for a non-secured credit card. But keep the same strategy. After about a year of doing this, you can sign up for a charge card, which will allow you to build your credit even faster.

Common Credit Myths Busted

Now we’re going to talk about some credit card myths that a lot of people believe, even though they’re 100% false!

Myth #1: You need to pay interest or keep a balance to build credit

Some people think the only way to build credit is to be LATE on your payment, therefore paying interest. This is patently false. Paying interest has not been shown to raise your credit score, so why give the banks any more money than you have to?

Myth #2: It hurts your credit score to check it online

It does not hurt your credit score to check it. In fact, you can use a website like CreditKarma.com to check your credit score whenever you’d like. We recommend checking it at least once a month to make sure everything is going in the right direction.

Myth #3: Having Too Many Credit Cards Is Bad

Actually, having more than 1 credit card gives you more credit, which makes it easier to have a low utilization rate. For example, if you have 1 credit card with a limit of $10,000, and you use $3,000 of credit, your utilization rate is 30%. But if you have 10 credit cards each with a $10,000 limit, you have $100,000 credit and now only have a 3% utilization rate!