6 Credit Building Tips Everyone Should Follow
Building and maintaining good credit is essential to reaching many common financial goals. Unfortunately, the path to good credit can require some work if you don’t have a prior credit history, your credit history is too short, or if you have some previous problems in your credit history.
Instilling good habits with your credit spending can rebuild your credit score over time. With hard work and consistency, however, often scores can be significantly increased within 6-12 months. Provided below are 6 ways to build good credit that are commonly used are listed.
1. Don’t Open too Many Credit Card Accounts
Opening too many credit card accounts can lead to too much spending and quickly getting overwhelmed with debt. It’s good to open 1 or 2 accounts, to begin with, and individually work on building a good payment history with those accounts. With most companies, credit lines will be increased after a pre-set period of on-time payments.
2. Pay Your Credit Card Balances in Full
It’s a good idea to spend regularly on your open credit accounts to show responsibility and establish a history of on-time payment. However, if you repeatedly spend more on your credit cards than you can repay, you can find yourself burdened with a high amount of debt and the potential of not being able to make your payments on time. Making a point not to spend more than you can repay at the end of the month will show responsible credit usage over time and reflect well on your credit report.
3. Always Pay on Time
Ensuring that you meet your monthly repayment obligations is one of the most important things you can do to build good credit. Not only will making timely payments save you money in any late fees or raised interest rates, but it also will show future creditors that you can responsibly handle your debt. Missed payments, mainly if they occur with regularity or aren’t resolved quickly, will negatively impact your credit score and can take a while from which to recover.
4. Keep Your Debt to Income Ratio Low
It’s not always a bad thing to maintain a balance on some of your credit cards, as long as you do so responsibly. Pay attention to the amount of debt you are carrying, because if the amount is high and your debt to income ratio exceeds 30%, this can reflect poorly on your credit score until your debt lowers. Creditors see a high debt to income ratio as a red flag indicating a borrower’s potential of being overwhelmed in the future and being unable to repay their debts.
5. Get Added as an Authorized User
If you have a poor credit history or have not established a credit history yet, getting added to a friend or family member’s account as an authorized user can be an excellent way to begin building credit. Use this method with caution, however, as if the account holder does not make timely payments or if their balances are too high, this will negatively affect your score.
6. Check Your Credit Reports Regularly
The more you know about your credit, the better. Monitoring your credit score and credit report regularly can help you gain a good understanding of how your actions affect your score and allow you to see any issues that may need correction. Regular monitoring can also help you catch and stop any potentially fraudulent activity that can negatively impact your credit score or cause more severe problems.
You are entitled to one free detailed credit report per year, but there are also many free online companies that can help you monitor your credit more regularly.