27 Aug Credit Building Tips
Building a strong credit score takes time and some effort to make smart financial decisions. Credit scores range from 300 to 850, and the higher your score, the more likely you are to receive great rates and terms on lending options. If you are working towards improving your credit, it’s important that you understand how it is calculated. The equation is based on five major factors:
- Payment history – Creditors will look at your record, including payment history on utility bills and payments on loans or credit cards, to understand how you have handled your financial obligations over the years.
- Amount owed – This is the amount of outstanding credit card or loan debt.
- Length of credit history – A reflection of the length and age of each credit line on your credit report.
- New credit – Creditors will make note if you have opened new credit cards or taken out any loans recently.
- Types of credit used – This refers to your ability to manage a mix of credit, such as credit cards, auto loans, or student loans.
While there are no “quick fixes” to boost your credit score, there are a few simple methods you should utilize and continue throughout your life.
Keep Your Balances in Check: Try to keep your balance at no more than 30% of your limit on each credit card you own. This may mean paying down balances and keeping a closer eye on your spending habits. It is smart to budget your finances, come up with a payment plan, and focus on paying off your highest interest cards first. While having a balance is not a problem, keeping it in check should be your main goal.
Always Make Your Payments: Did you know that your payment history accounts for 35% of your credit score? Late payments could decrease your score by up to 110 points! Tackle this by setting up payment reminders. You can choose to schedule payments through your bank or set reminders through mobile applications or a mobile calendar.
Build Your History: This can be more difficult for newer borrowers, but the length of your credit history accounts for 15% of your score. While it can help your credit score to have credit cards, it is important to manage them responsibly. It takes time and dedication to build your credit profile. Don’t be afraid to begin your credit history when you know that you can properly build and care for it.
Be Careful with New Credit: While older credit cards carry more weight when calculating your credit score, new credit accounts need just as much consideration. Having too many open credit cards (even if you’re paying them on time) can hurt your credit profile. Also, having several companies pull your credit score in a short period can hurt your score.
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