Build Credit with Good Credit Habits

How to Improve Your Credit Score with Good Credit Habits

If you’ve been struggling with finances lately, there’s never been a better time than right now to hit the reset button and map out a plan for getting ahead. A good place to start is by improving your credit score. A good credit score can open the door to achieving important milestones, like buying a first car or a home. A higher credit score may translate to lower interest rates on what you borrow, and your credit can affect other things, like being able to rent an apartment or get utility services in your name.

7 Ways to Build Credit with Good Credit Habits

While it may take time to see changes in your credit score, starting to build good credit habits will help your credit score improve in the long term.

1. Pay your bills on time

The single biggest factor in your credit score is your payment history. Making on-time payments, even if you can only make the minimum payment, can help keep your credit score on track.

It’s ideal to pay your full statement balance every month within your grace period — that way you can avoid interest and prevent the accumulation of debt.

2. Avoid maxing out credit accounts

Another key factor in your credit score is your credit utilization ratio, which is a percentage that references the portion of total available credit you’re using. It’s recommended not to have a credit utilization ratio above 30% for all of your lines of credit in total — however, maxing out a single account, even if you have other, untapped accounts, may still impact your credit.

3. Check Your Credit Score Regularly

Your credit report includes information about your credit accounts, such as your payment history, balances, credit limits, and how often you apply for credit. Those details are used to generate your credit scores.

Knowing what's in your report can help you build a better score. For instance, if you have a spotty payment history, a consolidated view can inspire you to be more consistent. Checking your report often can also help you spot signs of identity theft or other account errors.

4. Be disciplined about budgeting

Budgeting may not seem related to credit, but it is. If you don't have a budget, you may be more tempted to overspend, driving up your credit utilization in the process. That can set your score back, rather than moving it forward.

Credit cards, when used responsibly, can help you build credit over time. The key is fine-tuning your budget so you get in the routine of charging purchases, then paying them in full on time each month. Doing that consistently is a great way to improve your credit score.

5. Contribute to an emergency fund

An emergency fund on its own won't improve your credit score, but its benefit will be seen when you’re in a financial pinch.

What an emergency fund allows you to do is avoid overextending your lines of credit, such as credit cards, home equity financing, or personal loans. Rather than using more of your available credit, you can utilize the savings you set aside as an emergency fund and avoid paying interest and potentially racking up monthly repayments.

6. Apply for New Credit Only When Needed

Every time you apply for a new line of credit, whether it's a mortgage, an auto loan, a credit card or something else, the lender will run a hard inquiry on your credit report. This results in a small dip to your credit score that on its own isn’t significant — but multiple hard inquiries in a short period of time can be a red flag to lenders.

Instead, seek out prequalification, which will sometimes require only a soft inquiry that won’t result in any credit score damage.

7. Think before closing accounts

There are several reasons experts don’t recommend closing lines of credit: open, existing accounts can improve your total credit limit, credit utilization ratio, and age of credit accounts.

Depending on the mix of credit types you have, closing an account may have a big or small impact — closing your only credit card, for example, may cause a bigger drop in your score than, closing your newest card.

Instead of closing an out of use account, consider leaving it just in case if there’s no fees attached.

Go back to basics of good credit habits

Building better credit begins with practicing smart repayment habits. Paying your bills on time is one of the most important since payment history carries the most weight in credit score calculations. If you fell behind on a bill or two amid the holiday rush, getting back on track should be a top priority.

The other part of the puzzle is maintaining low balances on your credit card accounts. Credit utilization, meaning the percentage of your total credit limit you're using, is another important factor in credit score calculations.

If you're starting the new year with credit card debt, focus on creating a plan for bringing the balances down. And remember to track your progress so you have a motivational boost to stick with it.

Why is a Good Credit Score Important?

A good credit score can open a variety of financial doors.

Higher credit scores can allow you to qualify for premium credit cards with better rewards and perks. An excellent credit score can also help you qualify for certain loans and mortgages, or even get better interest rates on the loans that you qualify for.

With poor or no credit history, many financial products may be unavailable. But if you start implementing these keyways to improve your credit score, you’ll be on track to a better credit score and all the benefits that come with it.

Using a Citi® Secured Mastercard®

If you’re just starting your credit journey, it may be hard to see what credit products you can qualify for. A secured credit card like the Citi® Secured Mastercard® is a great entry point into beginning your credit journey.

The Citi® Secured Mastercard® is a secured card, which means it requires a cash deposit. It offers the full convenience of a credit card with free score tracking, and $0 Liability on unauthorized charges. Timely, regular payments on your Citi® Secured Mastercard® are a great way to start building an excellent credit score.

Additional Resources

Insights and Tools

Utilize these resources to help you assess your current finances & plan for the future.

FICO® Score

Learn how FICO® Scores are determined, why they matter and more.

Glossary

Review financial terms & definitions to help you better understand credit & finances.