Building credit is one of the most important factors to financial wellness. Whether you have just started building your credit or need to rebuild your credit, here are some quick and easy tools for you to use to successfully build a sustainable credit score.
Apply for a credit card
For you to have a credit history you need to have credit. That can be a personal loan, student loan, utilities, mortgage, or credit card. A credit card is a great way to build credit if you borrow responsibly. Applying for a small credit card and keeping the balance under 30% can give you a great start to building good credit. After maintaining your first card for at least a year, apply for another credit card. This will show anyone who is looking at your credit history that you have multiple accounts that you can manage and have had the credit line open for years. This not only shows them responsibility but also accountability. You have shown that you financially can maintain credit and know how to budget your income effectively.
Check your credit score regularly
Consistently check your credit score. You want to make sure that credit bureaus and other accounts you have open are accurate. Make sure that there aren’t any open debt collections and if they are, be sure to pay them off. Getting rid of debts or bankruptcies are key to higher points on your credit report. You don’t want things to incorrect on your account. Incorrect credit accounts could lower your score. Make you are aware of your credit score and keeping track of lost or gained credit points.
Minimize as many credit pulls as possible
Applying for a house, car, new credit card or anything else that requires a credit report can cause your score to drop. Minimize as many credit pulls as you can. Make sure to ask the company before they process your application if they will be running a credit report. Make sure to also check your credit report yourself to make sure that the company you applied with is the only company that appears on your report at that time. Know the difference between a soft credit pull and a hard credit pull. Soft credit pulls rarely show up on your credit report. Hard credit pulls ALWAYS show on your report and can lower your score for a few points. It is hard to get away from pulling these reports when companies are requiring your credit history. To avoid a lower credit score, make sure when you apply to these companies that your score is high enough that if it does drop your score that you are still in good standings. Don’t apply for multiple things at once that will pull your credit. Your credit history will show you are applying to multiple places and either taking a large loss on your credit score or are trying to find options for financing. You want to be able to apply to one thing at a time and be approved instead of denied.
Under-use your credit card
Although it’s hard, don’t max out your credit cards. Maxing out means higher payments. This can financially ruin your credit if you are not able to pay any of this back. Remember to always keep your credit card usage at 30%. Meaning if your credit limit is $500 then to only finance $150. This will keep your payments low and comfortable for you as you pay the card off.
Pay off your debts
Any debts such as hospital bills or collection accounts that are on your credit truly affect your score. Open collection accounts can result in a denial for a home, loan, or even a car. Make sure to pay off all your debts to ensure your history is clean. Focus on setting up a payment plan for your accounts that are open. The company will report that the account is active and that you are making payments. Making payments are much better than not making payments at all.
Pay 100% on payments and pay on time
The most important factor to having great credit is also paying on time. Late payments or falling behind on a payment are two of the main ways a credit score can quickly drop in one month. Forgetting a payment date or payment can be the worst. Try to schedule in your due dates for your payments in a planner or calendar to stay up to date on your credit cards. Paying the amount in total and on time will greatly benefit you and your credit score.