There is always talk about the best way of establishing or correct your credit score/history. This information is most useful to both those having little credit because of age (e.g. college students) and those having poor credit because of past mistakes (e.g. bankruptcies, defaults, etc.). Read on for six important tips on building your credit.
Simple Ways to Build/Re-Build Your Credit
1.) Get a Secured Credit Card
Almost anybody can apply and be accepted for a secured credit card; they have very low limits and high annual percentage rates and thus are very easy to get. Use this card carefully and pay it off in full every month to begin building your credit up. If you are an impulse spender then keep it in a drawer at home and only use it to pay off utilities or something like that. Be sure to never miss a payment, and never go over your limit. Think of it as being on credit probation: don't make any mistakes or you'll have to start over!
After about a year or so your credit should have rebounded and you can apply for a normal credit card with some chance of success.
2.) Make Payments On-Time
As stated above, never, ever, miss a payment. You can miss a payment due date by a few days and escape with just a $39 past-due fee, but if you let that escalate to thirty days past-due or more your credit score will plummet. This is one of the worst things you can do to your credit, as it shows banks and credit card issuers that you cannot be trusted to repay your debts in a timely fashion. Nobody wants to loan to deadbeats, not even greedy corporations!
3.) Stay Under Your Credit Limit
Don't max out your credit cards and lines of credit. This forewarns the companies that you are in trouble. Try to keep your balance owed to under 30% of your maximum limit.
4.) Keep At It
A big part of your credit score is your credit history. Everything you do is recorded, including your mistakes, so try not to make any. If you can keep record for a few years your credit score will be back to normal. The longer the better.
5.) Try Different Angles
Credit history isn't just based on savings accounts and credit cards. The decision-makers also take a look at mortgages, loans (student, automobile, etc.), among other factors. Not a huge deal, but it affects your credit nevertheless. Of course, the single biggest factor will always be your reliability: can you be trusted to pay back what you owe in a timely fashion?
6.) Check Your Credit Report
Check your credit report at least once a year via the free FTC-supported credit report web site. Stay away from the pay services. Make sure that there are no mistakes on the report. If there are, do all you can to correct them. An unpaid balance of any amount can wreak havoc on your FICO score.
Comments
What about having a bunch of unused credit cards? I have some that I use for only a very occasional purchase. They all have $0 balance. Will this effect my credit score in a negative or positive way?
Hi Rob. As for unused cards, it’s best to just keep them open (as long as they have no annual fee). This helps your credit score because each one contributes to your credit history.
Definitely never cancel cards that you’ve had for a long time, as those are the ones that have a big part in positively affecting your credit rating.
How about the idea of applying for a bunch more and not using them? It would decrease my credit score at first, but for how long?
That wouldn’t help your score *that* much, so I wouldn’t bother. Having the cards in itself doesn’t help your score so much as having the history.
As for the negative affect on your credit score: your FICO score can be hit for somewhere around 15 points for every ‘hard-pull’ on your credit (which most companies do when you apply for their card…unless you already have another card with them). It is usually back to normal within three to six months though.
