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Your credit score can affect many areas of your life.

A poor credit score can make it harder to buy a car, get a job, purchase a home, rent an apartment, have the utilities turned on, and even get a cell phone.

It can also cost you money, since credit card companies and lenders typically consider your credit score when determining your interest rate.

Fortunately, if your credit is less-than stellar–or you haven’t yet had a chance to establish much, or any, credit history–there are some simple steps you can take to build or boost your score quickly.

While you can’t typically establish exceptional credit overnight, you may be able to improve your credit score in a matter of months by putting a few good credit habits into practice, building a positive payment history, and avoiding credit-damaging mistakes.

Simple Steps to Build Your Credit Faster

Here are some strategies that can help you establish or improve your credit profile ASAP.

1. Understanding What Goes Into Your Score

One of the most commonly used credit scoring models is the FICO® Score .

FICO has five factors it considers when calculating its credit scores.

•  Payment history: 35% of this score is related to your history of payments on credit cards, student loans, mortgages, and other loans. The algorithm looks at the frequency and severity of missed and late payments.
•  Credit utilization: 30% of this score is based on how much of your available credit you are currently using.
•  Length of credit history: The amount of time you’ve had each credit account open makes up 15% of this credit score. That’s why it’s nearly impossible to have perfect credit when you’re new to credit.
•  New credit: 10% of this credit score has to do with opening new credit. (However, opening several new credit accounts at the same time isn’t typically a good way to bump up your score, because that can look like you’re in financial trouble).
•  Credit mix: The final 10% of this credit score is based on the different types of credit you have and how you’ve managed them.

2. Checking Your Credit Report and Disputing any Errors

Credit scores are calculated on the information in your credit reports.

That’s why it’s a good idea to get copies of your credit reports from the three major credit bureaus–Equifax , TransUnion and Experian –and to make sure all the information is accurate.

According to the Consumer Financial Protection Bureau (CFPB), one in five people have an error on at least one of their credit reports.

Everyone is entitled to see their credit reports for free once a year at the government-mandated AnnualCreditReport.com site.

When you get your reports, it’s a good idea to comb through them carefully and to look for any inaccuracies, such as payments marked late when you paid on time, wrong account numbers, incorrect loan balances, or accounts that aren’t yours.

If you find an error in one or all your credit reports, you can reach out to the credit bureaus directly to dispute the information.

If you see accounts in your name that you never opened, and believe you may be a victim of identity theft, you can report it to the Federal Trade Commission at IdentityTheft.gov or 877-438-4338.

A mistake on one of your credit reports could be pulling down your score. Fixing it can help you quickly repair your credit.

3. Paying Bills on Time Every Time

Payment history is the single most important factor that affects your credit scores.

Not only that, a past due payment can stay on your report for seven years.

Setting up autopay, either through each provider or company, or through your financial institution, can be a great way to ensure you never miss a bill.

If you do miss a payment by a few days, all is not necessarily lost, however.

There is generally a small window of time to make up a missed credit card payment before any damage to your credit happens.

That’s because late payments are typically not reported to credit bureaus until the payment is at least 30 days late.

The key is to get it in as soon as you can.

4. Becoming an Authorized User on a Credit Card

If you have no credit or a low credit score, you may be able to build it up by becoming an authorized user of a credit card that the cardholder uses responsibly.

An authorized user has permission to use an account, but does not have any liability for debts.

If a friend or family member adds you as an authorized user to their account, the card issuer will then typically report you as an authorized user to the credit reporting companies.

In this way, you gain a credit history from the credit usage of your friend or family member.

5. Opening a Secured Credit Card

Some credit card companies offer “secured” credit cards, which allow you to build credit history with little risk to the credit card company.

Here’s how it works: You pay a cash deposit up front that is equal to the limit of the card. For example, if you put down a $500 deposit, you would have a $500 limit on the card.

You can then use it like a regular credit card.

Using the secured card responsibly–being mindful of the amount you’ve charged in relation to the card’s limit–and paying your bills in full and on time will all be reported to the credit bureaus.

6. Using your credit card regularly

One way to build credit is to display a history of responsible borrowing.

For that reason, you may want to place monthly bills and other expenses on your credit card–being sure to pay the bill in full each month by the due date.

7. Keeping Credit Card Balances Low

This can help move the needle on credit utilization, or the amount of debt you have compared to the total amount of credit that is available to you, and is expressed as a percentage.

After payment history, this is typically the second most important factor that influences your score.

The rule of thumb is to use no more than 30% of your total credit at any time. This includes access to all credit lines, as well as the percentage on individual cards.

One way to do this is make multiple payments on your credit card throughout the month.

If you’re able to keep your utilization low, instead of letting it build toward a payment due date, it could quickly benefit your score.

8. Keeping Credit Cards Open

It might seem to make good financial sense to close credit cards you never or seldom use.

But from a credit score perspective, it may not be a wise move.

That’s because closing a credit card means you lose that card’s credit limit when your overall credit utilization is calculated, which can lower your credit score.

A better bet might be to keep the card open and to use it occasionally so the issuer won’t close it.

The Takeaway

A credit score in the good to excellent range could provide you access to the most competitive interest rates for loans and credit cards, and also make it easier to rent an apartment, get a cell phone, and land a new job.

Some ways to improve your score quickly include having active open accounts that you are consistently paying on time, keeping your loan balances low, and disputing any errors on your credit reports.

Building good credit is also a matter of establishing good financial habits, such as tracking your spending (so you don’t come up short at the end of the month), and make sure all of your bills are posted by their due dates.

One move that can help you stay on top of your finances is signing up for SoFi Checking and Savings®.

SoFi Checking and Savings is a checking and savings account that allows you to earn competitive interest, spend, and save–all in one account. And you’ll pay zero account fees to do it.

SoFi Checking and Savings also allows you to track your weekly spending right from the dashboard in the SoFi Checking and Savings app.

You can also use the app to set up all of your bill payments to help ensure that payments are never missed or late.

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SOMN21007

The future is here, and while the flying cars that were promised haven’t arrived yet, the finance world is speeding full-force into the future with everything from wireless payment apps on our phones to entirely decentralized finance systems.

Decentralized finance, known as DeFi for short, is a fundamentally new financial system that moves monetary control away from centralized banks and towards public blockchains.

Put more simply, DeFi has the potential to change the underlying mechanics of financing and banking, as well as how people access financial services, by using the internet and smart devices instead of going through a centralized bank.

What Is Centralized Finance?

In order to understand DeFi, it is helpful to understand how the traditional financial system works. In general, the current US financial system is largely controlled by central authorities.

For example, some aspects of the financial system are controlled by the Federal Reserve (sometimes referred to as “The Fed”). The Federal Reserve, which serves as the nation’s central bank, was created in 1913 after several financial panics caused people to withdraw their money from decentralized banks. Mass withdrawals of money caused banks to fail and incited more financial crises.

In response to these crises, the US government created the Federal Reserve, which acts as a centralized banking system and attempts to stabilize the economy through means such as managing national monetary policy and regulating banks. Banks, which are regulated by the Fed, also have their own controls and regulations on how finances are conducted.

For example, a bank might require a driver’s license to open a checking account or a certain credit score to take out a loan.

Simply stated, whether buying groceries with a debit card or saving for retirement, most of our financial transactions go through a bank, lender, investment company, or financial institution that is highly regulated.

Why DeFi?

While centralized banking was created in order to foster economic stability, it has come with restrictions on how people can access financial options, and with criticisms that putting financial control in the hands of a central body can create more risk if that central body gets it wrong. For example, what if the Fed decides to print too much money and inflation explodes or interest rates shut out people from accessing credit lines?

Or what about credit rates in general—if people take financing out of regulated contexts, could consumers see higher interest rates on their investments?

For example, as discussed above, most financial transactions take place through intermediaries: A bank account is required in order to use a debit card. An account at a financial institution is required in order to earn interest on money.

A broker is required in order to invest in the stock market. Each of these intermediaries is a product of the centralization of the nation’s financial system—and each intermediary potentially minimizes consumers’ financial earnings.

In the most elemental way, when money is deposited in a savings account, it earns interest. The interest that money earns is funded by the financial institution where the account is located. That financial institution earns money by lending depositors’ money to borrowers, who pay interest to the financial institution.

But the interest rate earned on a savings account is not the same as the interest rate the financial institution charges the borrower. Because it is acting as an intermediary between saver and borrower, the financial institution controls both interest rates.

But would both savers and borrowers get a better deal if it was possible to make secure financial transactions without an intermediary like a bank or other financial institution?

These are some of the questions about centralized finance that supporters of decentralized finance think that DeFi can answer without necessarily losing the stability created by a centralized bank.

What Is Decentralized Finance?

At its most basic, the idea behind decentralized finance is that it would truly put money in an individual’s control. While it might seem like there is individual control over money though robust banking options, checking and savings accounts, financial management apps, and ATM access, each of those things actually requires turning over that money to an institution and trusting that intermediary to manage it. The underlying goal of DeFi is to give actual control by using blockchain technology and open source coding to do the same types of transactions that currently take place largely through financial institutions.

Blockchain technology is a term commonly used in relation to cryptocurrency. At its most basic, blockchain can be thought of as a secure logbook that records transactions but is not controlled by a centralized institution. Rather, accountability in the blockchain is ensured because the “chain” is not editable and is stored in many places instead of in one centralized institution.

If this sounds familiar, it may be because blockchain serves as the “building blocks” of cryptocurrency like bitcoin. To understand DeFi, however, it is only important to understand that blockchain is secure, automatically generated, and able to be examined and tracked, just like a physical ledger. And unlike banks, blockchain is stored on users’ computers, which means that it’s not controlled by a central authority like the Fed.

In order for cryptocurrency like bitcoin to exist, it needs a secure ledger to track it—that’s blockchain. So is DeFi just a synonym for bitcoin and other cryptocurrencies? Not exactly. While cryptocurrencies are decentralized when it comes to issuance, transfer, and storage, they are still centralized when it comes to access and management.

Specifically, you still need to access cryptocurrencies through centralized exchanges, and many cryptocurrency projects are managed through companies which functionally act as that intermediary that DeFi seeks to eliminate. Some cryptocurrencies even tie their worth to physical currencies like the US dollar to attempt to provide stability.

DeFi takes crypto to the next level by attempting to give the benefits of cryptocurrency without the need to tie access and management through centralized access points or companies, which can obscure the open nature of these transfers and potentially lead to abuse of the system.

DeFi is a network of open-source apps based on blockchain that allow users to engage in financial acts in an entirely peer-created, peer-reviewed, open-source world, which is all based on the security of blockchain.

Because everything within the DeFi crypto universe is open source, users theoretically have the control to engage in a wide variety of financial transactions with the assurance provided by the underlying blockchain technology.

How Can Decentralized Finance Be Used?

There are many ways that DeFi crypto is and could be used. One popular way that it is being used currently is with open lending protocols. While the name sounds complicated, open lending protocols essentially seek to eliminate the centralized middleman between lenders and borrowers.

For example, instead of one person putting their savings in a bank and another person applying for a loan from that bank, two people could use a DeFi open lending protocol to lend and borrow money with open-sourced, agreed-upon contracts created by the DeFi system and stored in unalterable public blockchains.

DeFi can also be used for things like international and peer-to-peer payments. Currently, if one person wants to send money to another person, options may be limited to a third-party service or a bank in order to transfer the funds. Currently, these services take time—it may be hours or even days between when a sender transfers money and when someone else receives it.

Additionally, these services can be expensive. Whether paying a fee to a bank for a money transfer or paying to use wire services, sending money from place to place can add up.

DeFi is one possible answer to routing money from person to person because it allows individual people to transfer money to each other securely and instantly without relying on centralized third-party providers.

Getting Started With DeFi and Cryptocurrencies

DeFi is starting to take off, but it remains to be seen whether it will truly become an alternative to traditional banking. One sure thing, however, is that cryptocurrencies are becoming cemented in the financial system. An easy way to buy cryptocurrencies without needing to be a financial expert is with SoFi Invest®.

SoFi Invest® empowers members to trade stocks, ETFs, and even cryptocurrency. SoFi’s crypto offerings currently include Bitcoin, Etherium, and Litecoin, and can be accessed directly in the SoFi app.

Easily add cryptocurrencies to your savings plan with SoFi Invest® along with traditional investments like stocks and ETFs. A separate cryptocurrency wallet, or even cryptocurrency experience, is not necessary before getting started.

SoFi Invest®