Can You Establish a Great Credit Score... Fast?

A Credit.com reader asks:

Does using your credit card to spend more money on a monthly basis increase your credit score at a faster rate? For example, if I just used my credit card to make thirty $10 purchases in one month, will that increase my credit score as fast as using that card to make thirty $20 purchases in a month … or 50 $40 dollar purchases?

Would getting four different credit cards (that all report to the three bureaus) and making a small number of purchases on each card increase my credit score faster than using one card for all purchases?

By the way, I have not established credit, but I just moved and I have lots of stuff to buy, so I am wondering how I can get an excellent credit rating as quickly as possible. I understand it will probably take years, no matter what.

Other than credit cards, do you have any suggestion on how to increase my credit score fast?

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Ah, if it were only that easy! Unfortunately, there are few shortcuts to building a strong credit rating. Your first strategy—making lots of small purchases on the card—won’t make a bit of difference, for two reasons. The first is that your credit report reflects the most recent information reported to the credit reporting agencies, and that’s usually reported on a monthly basis. Your credit report will show information such as the credit limit, current balance and payment history, but it won’t show your daily purchase history.

In addition, your credit score is also a snapshot in time. It is calculated when it is requested (by you or by a lender) and is based on the current information in your report. While your payment history over time is an important factor, your purchase history doesn’t figure in.

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Another common misconception that it’s somehow better for your credit scores to make a large purchase on a credit card and pay it off over time than it is to make small purchases and pay the bill in full. Neither is necessarily better for your credit scores, and the first approach can actually hurt your scores if the large purchase means you are using a substantial portion of your credit lines.

The second strategy you ask about is getting four cards and using them all to build credit at the same time. That, too, may be counterproductive. Those accounts will all be new accounts, and it is best to build a credit history over time. In addition, with four cards, you’re more likely to run into problems and even miss a payment, which can hurt your credit scores. Finally, it’s best to have a mix of different credit accounts, including an installment account (student loan, car loan, and/or mortgage, for example) along with credit card accounts. You don’t have to limit yourself to one credit card, but you don’t have to load up on several at once, either.

Piggybacking is the only strategy that has typically worked well in the past to build credit references quickly. But it may or may not work for you, depending on your situation.

If it’s not an option, then it’s best to take the slow and steady route: get a credit card or two, use them to charge things you’d buy anyway, pay your bills on time and in full if possible, then rinse and repeat. You can also look into a small loan from a P2P service. These loans are typically reported as installment loans, which can be helpful for rounding out your credit references. And if you have a specific goal in mind, such as buying a home, talk with a loan officer. There are decent mortgage programs available for prospective home buyers with “thin files” (in other words, not a lot of credit). And take heart in the fact that you at least are not drowning in debt like a lot of people today.

Finally, don’t worry that this process will take forever. You can begin to establish a credit score once you have one account with six months of payment history reported.

Image: HOLLi*, via Flickr.com

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