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If you want to build your credit, there’s no getting around the obvious: You’ve got to manage your debt responsiblyÂ and pay your bills on time. Here are five things you can do to get you on the path to building good credit:
1. Make on-time payments.
Set up automatic paymentsÂ with your lenders, put reminders in your calendar, slap sticky notes on your refrigeratorâ€”do whatever you need to do to make your payments on time. Your payment history is payment history is an important component of your credit score. 1
2. Don’t max out your cards.
Don’t carry over large balances from month to month. Another important factor in your credit score is what’s called a credit utilization ratio, or how much of your available credit you’re using. 1 Credit reporting bureaus look at both the utilization on each card and the utilization across all of your cards. Generally, the lower the utilization the better, so it’s a good idea to pay off your debts in full every month.
3. Don’t take on too much credit at once.
Only apply for the credit you need. Each time you apply for credit you rack up a “hard inquiry,” which can impactÂ your score. 2
Besides the credit inquiries, opening too many credit cards can make it hard to keep up with all the bills. For people who have a lot of debt across multiple cards, a consolidation loan can make a lot of sense. That’s because it can make it easier for you to accomplish both of the above goals. A consolidation loan means you can make one monthly payment, sometimes at a lower interest rate, rather than several payments. That reduces the chances that you’ll miss a payment. Further, a consolidation loan could possibly lower your credit utilization.
4. Maintain a healthy mix of credit.
Creditors like to see consumers wisely utilizing different types of credit, including revolving accounts such as credit cards, and installment loans, such as car loans. 3
5. Know what’s on your credit report.
Pulling your own credit report is considered a “soft inquiry” and does not impact your credit score in the way a hard inquiry does. Monitor what credit reporting agencies are saying about you, and challenge any inaccurate information they may be reporting.
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