How to Help Build Credit
If you search for the term
credit score online, there is no shortage of information on how to build credit. Over 38,000,000 search results, to be exact. But who has the time, patience, and focus to read through such a blizzard of information? Here are some tips to help you build your credit.
Tip 1: Learn about your credit report and credit score
Here's a list of what goes into your credit score:
Payment history: approximately 35%
Maintaining a positive credit history has the biggest single impact on building and maintaining good credit health, says Clifton M. O'Neal of TransUnion.
A positive credit history means paying the minimum or more on your credit obligations each and every month.
Credit utilization: approximately 30%
Your FICO score does not consider your credit limit by itself. Instead, the FICO score considers your
credit utilization rate, which is calculated by dividing an account's outstanding balance by its credit limit.
Length of credit: approximately 15%
Establish credit early. The longer you have a track record, the better.
Managing new accounts: approximately 10%
Think twice before signing up for a new store credit card. If you apply for new credit frequently, credit companies may view you as a riskier client, especially if you haven't been handling credit for very long.
Types of credit: approximately 10%
The FICO score may consider the types of debt you own. Is it all credit cards, or are you also successfully managing installment loans?
Check your credit report frequently
The major agencies—Experian, TransUnion, and Equifax—must each give you one free report annually. You can also get a free credit report at AnnualCreditReport.com, a site authorized by Federal Law.
Who sees your credit report, and what they learn
Want to know if a public record is reflected in a credit report? Or how far back a report goes? Which institutions are allowed to pull up your credit report? Or what to do if you've spotted an error on your report? For answers to these questions and more, check out this infographic.
Tip 2: Learn how credit cards work—and how they can work for you
You've spent enough years
sorta knowing how credit cards work. It's time to change that. Understanding basic credit card information helps you take advantage of their benefits.
Understand the fine print
Not sure of the difference between APR, variable rate, and prime rate? Click here to learn about 9 of the most important credit terms—so you can decode the fine print on credit card contracts and offers.
Get the most from your credit card
Tip 3: Put your credit health on cruise control
Consistency is the key to building healthy credit, so automate your finances to act on your behalf.
Quit paying bills manually
Consider switching your bills to auto-pay. You'll be less likely to miss a payment due date if funds are automatically withdrawn from your account to pay off your balance each month. Just remember: Systems break down and card numbers expire. It's important to check in on everything once a month to make sure you're on track and can make adjustments as needed.
Get text or e-mail alerts from your credit card issuer when payments are due, payments are made, and when you're reaching your credit limit.
Be methodical about paying off debt
Perhaps you're a college student struggling with loans. Or a shopaholic in denial refusing to read your credit card statements. If you're serious about paying down your debt, it's important to first take stock of your finances, figure out how much you owe, and develop a plan for making payments each month to get yourself back on track.