How to Build Good Credit
Five Tips That Anyone Can Use
These days, building good credit is the ticket to getting a lot of other good things—a car, a house, a cell phone or even a new job. On the surface, the badge of “good” credit might seem vague and elusive, but if you know how to build your credit, you’ll slowly start to see the benefits.
Check your credit report to know where you’re starting
You’re entitled to a free copy of your credit report from the major credit reporting agencies once each year. Request them at the FTC-sponsored website, AnnualCreditReport.com.
Focus on the fundamentals
While checking and savings account data isn’t typically reported to the credit agencies, lenders will look for these accounts, so it’s important to make sure you have them.
With your existing bills, do your very best to make every single payment on time. Pay at least the minimum due and ideally more if you’re able. Missing a payment will usually cause a creditor to charge you a fee and raise your APR, and, if reported, the missed payment may negatively impact your credit score.
If life gets in the way and you absolutely cannot make a payment, call your creditor and explain your situation. They may be willing to work with you.
Monitor and manage your credit utilization (debt-to-credit) ratio
Your debt-to-credit ratio is defined by how much of your available credit is currently being used.
To figure out your credit utilization ratio on any credit card, you need to know your credit limit on that account. Typically it’s listed on your statement or you can call the credit card company to get this information. Divide your current credit card balance by your credit limit and multiply that number by 100. The resulting number is your credit utilization as a percentage. Credit companies will calculate this number across all of your open credit card accounts.
In general, a lower number is usually better. If you have multiple credit cards, you’re better off spreading the balance between them instead of loading up all your debt onto one card.
Have a diverse portfolio of credit accounts
Credit cards, bank loans, retail accounts and mortgage loans are all typically considered when your credit scores are calculated. While it’s great to have a mix of several types of accounts, it’s also important not to open too many at once. Shop around and make sure your credit card gives you the best rate. And since length of credit history is also a component, keep the accounts you have open and active, if possible.
Start with a secured credit card with a plan to graduate up to an unsecured card
You might be wondering how to build credit if you have little to no credit. One good way to start is with a secured credit card, in which you deposit an amount of cash up front as collateral and then can charge up to your assigned credit line.
Be sure to charge only what you can pay for each month so that your credit utilization ratio remains low and you’re able to build a good payment history and establish good habits. It’s also a good idea to check with the issuer of your card to ensure they’re reporting this activity to all three major credit bureaus.
Like a cell phone or social media, a credit score is a reality of modern life. Supplied with the knowledge on how to build credit, all you need is a little attention to detail every month to stay on top of your credit score.
One great option for you to build good credit history is the Discover it® Secured card, which offers cash back rewards on your purchases.