A good credit score heavily determines whether you are eligible for a loan, credit card, EMIs and other such financial investments. Given that it influences the outcome of having financial security or the lack of it can be scary for many. 

According to Fair Isaac Corporation (FICO), a good score ranges anywhere between 670 to 739. Anything 800 above is considered excellent and anything below 579 is poor. The credit score is based on several criteria including payment history, length of credit history, credit mix and so on. 

Your three-digit credit score is essential for good financial health, especially for young adults aged 18-35.

While improving or building credit score can seem challenging on a low or modest income, salary is not the only factor that matters. Even with a modest monthly income of $3,000, you can establish and improve your creditworthiness from scratch.

Follow these 7 practical ways and financial habits to build your credit score:

1. Pay Bills on time

Clearing your bills on time is the most basic and important step to building a solid credit score. Payment history will account for a significant portion of your credit score. Setting up automatic payments or reminders ensures you never miss a due date, positively influencing your credit profile. 

Check out how Vola Card will report your monthly payments to the bureaus, automatically building and improving your credit history here. 

2. Being an Authorized User on Credit Card

If you have a trusted family member with good credit, consider asking them to add you as an authorized user on their credit card. Their trustworthy payment history will be reflected on your credit report and further aid in building your score. ​

If you fail to make timely payments, the primary cardholder i.e. your family member will be liable. Make sure you are mindful of your purchases. Monitor your debits regularly. 

3. Optimal Credit Utilization Between 10-30%

The credit utilization ratio is nothing but the amount of credit you use from the total available credit. For example, if your total available credit is $5000 and you have used $1000, your credit utilization is 20%.

Ideally, how much of your credit should you use? Many experts recommend using 10% of your available credit for an excellent score.

One cannot stress enough about the importance of paying off your balances on time. You can easily avoid utilizing more than 20% of your available credit if you thoroughly make your bill payments on time throughout your billing cycle instead of waiting for the due date. Calculate credit utilization regularly.

Another way is to request a higher credit limit if you are one of those who regularly spend more than 30%.

4. Keep Old Accounts Open

The length of your credit history impacts your score. Keeping older accounts open, even if unused, can benefit your credit age and overall score.

When you discontinue an old credit card, you are essentially shutting down the history of your previous consistent payments. However, please note that your credit score will be negatively impacted for a temporary period and will typically rebound in a few months, provided you continue with timely payments.

5. Avoid Unnecessary Hard Inquiries

Did you know that every time you apply for a new credit card, it leads to a hard inquiry on your credit report, causing a temporary dip in your score? While you cannot remove hard inquiries, you can dispute unauthorized or inaccurate inquiries with credit bureaus.

Apply for a credit card only when necessary and prioritize managing your current accounts responsibly.

As a thumb rule, you can follow these 3 steps:

a) Avoid applying for multiple credit cards or loans at a time and space out your applications. 

b) Do your own research on offers, benefits, limits, etc before applying for credit cards.

c) Monitor your credit report and flag any unauthorized inquiry to the credit bureau.

Also Read: A Beginner’s Guide: How Do Credit Card Rewards Really Work?

6. Small Purchases & Quick Payoffs 

It is a myth that you need to spend thousands on credit cards to build a strong credit.  More than the amount spent, credit bureaus value on-time and early payments, even for small amounts.

If you're starting from scratch on a tight budget and a modest income, make small purchases and pay them off quickly. This financial habit will also serve as a motivator to continue this progress and achieve higher credit scores.

You can also prioritize payoffs for high-interest debt to save money in the long run.

7. Explore Credit Builder Loans

Usually, the credit builder loans are for smaller amounts, from a few hundred to thousands of dollars. The intent behind this type of loan is to help you rebuild your credit and not make expensive purchases.

If you opt for a credit builder loan, the lender will deposit the money in either a savings account or a certificate of deposit (CD). This amount will act as security against the loan and will be released only after you have fully repaid your loan. The lender will then report your repayment behaviour to the credit bureaus. This will push you to make on-time payments without spending extra money.

Please note that you will still have to pay interest and additional fees that come with this type of loan. 

8. Leverage Vola App

You can use the Vola app to build and increase your credit score for free. The app will identify your recurring expenses such as rent and utilities in your bank account and report them to credit bureaus.

Unlike traditional credit-building methods, Vola eliminates credit checks and overdraft fees. This feature makes the app accessible to users at any stage of their financial journey.

Besides improving your credit score, the app’s Loan Dashboard will also help you manage loans and credit balances and reduce the risk of missed payments. This way, you can stay on top of your financial obligations and avoid costly interest payments. 

Furthermore, you can view your credit score directly within the app and receive tailored insights on how to boost your credit score. The app also has rewards like earning real cash back. By integrating these features into a single platform, Vola has helped 500,000+ users save $100,000,000 in bank fees.

Also Read: Deposits to Rental Recipients: How Vola Helped Build Users’ Credit Scores

Key takeaways:

1) Set up automatic payments and pay your bills on time.

2) Ensure that your credit utilization is between 10-30% of your credit availability.

3) Avoid discontinuing your old accounts to maintain a longer credit history and avoid temporary score drops.

4) Avoid hard inquiries that can lower your credit score by limiting new credit applications.

5) The Vola app is the best way to build credit as it reports payments, tracks expenses, and manages loans.

Conclusion

It is completely possible to establish a strong credit score on a $3,000 income with the correct financial practices and methods. Keep in mind that your salary merely affects your purchasing power and never determines your creditworthiness.

Your progress will be accelerated by little, regular acts, including maintaining open old accounts or becoming an authorized user on a reliable credit card.

You can also easily keep up with your credit responsibilities, manage your financial health, and report recurrent costs by utilizing tools like the Vola app.

Whether you're just starting your credit journey or looking to improve your existing score, these steps will help you build a stable foundation for long-term financial success.

Remember, building credit is a marathon, not a sprint. Stay patient, remain disciplined, and make informed financial decisions.