Having good credit is very important. The better your credit is, the less your interest rate will be for loans and credit cards. A few years ago, my credit was horrible. Thankfully, I got my act together, and now it’s in the 700’s. If you are young or if you are just now starting out, you might wonder how to build good credit.
It is not too difficult.
In today’s post, I will be giving you ten easy ways to build credit.
Open a Bank Account
If you are young or if you are trying to build credit, the first thing that I would do is to open a bank account. I would open a checking account and start off with $100. You should make sure that your account stays in good standing. Also, try not to get any overdrafts. An overdraft happens when money is withdrawn from your account, and the available balance goes below zero. When you’re building credit, overdrafts don’t look good at all. Your bank will also charge you a fee for those as well. Overdraft fees can be anywhere from $15 to $35. It sucks having to pay those fees.
Take Out a Small Loan
Taking out a small loan is another good tip. A good amount to borrow for the loan is $200 or less. You should pay the loan back in full monthly if possible. Repeat that process a few times. The more you do it, the better it looks to a future lender. A good place to apply for a loan is a credit union or a bank that you have a relationship with. They should be easier to work with.
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Have Good Employment History
Having good employment history is vital. It shows people that you are reliable. Lenders probably will not give you a good interest rate if they see you jumping from job to job or if you have long bouts of unemployment. They are looking for stability. It also shows that you are responsible. If someone is leaving their job every year, the lender may question if you can handle a loan or a credit card.
Get a Credit Card
Getting a credit card is another way to help build credit. Only use this tip if you are mature enough. A lot of people mess their credit up by freely spending money that they really don’t have. My suggestion would be to get a card with a limit of no more than $300. Use it a couple of times for groceries or gas and pay it off in full, monthly. You don’t want to get in over your head with credit card debt. I recently paid mine off in March after carrying some for years. I don’t want you to be in a similar situation.
Don’t Accumulate Debts, Keep Revolving Credit Balances Low
The credit utilization ratio (CUR) is another important number in credit score calculations. These rates are based uniquely on revolving credit, which is basically, your credit cards and lines of credit.
The CUR is calculated by summing up all credit card balances at a particular given time and splitting up that amount by the total credit limit. For instance, if you routinely charge about $1,000 monthly and the total credit limit across all cards of yours is $5,000; your utilization ratio is 20%.
Lenders usually enjoy seeing low ratios of 30% or below. The lesser the CUR, the more lenders will believe you possibly have a knowledge of credit management and that you haven’t exhausted your credit cards. A good credit score = a low CUR.
Don’t Open Too Many Credit Accounts
While opening an account is important, don’t open too many accounts.
Request for and only open new credit accounts as a matter of necessity.
Don’t open accounts with the sole purpose of improving your credit score and having a better credit mix. The probability that you will achieve that is meager. It just might not work.
Needless credit card accounts can have an adverse effect on your credit score. It could give rise to severe scrutiny on your credit report. Negative cash flow and buildup of debts are also not far-fetched.
Monitor and Conflict Any Errors on Your Credit Reports
Be incompatible with any mistake on your credit reports, be it major or just a slip of the pen.
It’s advisable to monitor and check your credits frequently for defects or oversights. Doing this will help you spot any errors there might be before they do damage.
Confirm that the listed accounts on your reports are true. Disagree with errors and get them rectified right away.
Wrong details on credit reports could drag scores all the way down.
Become An Accredited User On Another Person’s Account
Here’s another tip. Become a user on another person’s account.
You can positively influence your credit utilization ratio and improve your credit score when you are a legitimate user on another person’s account. This will tell lenders that you are efficient in managing credits.
But this is only advisable when the account owners are responsible credit users themselves. Else you might end up sending the wrong message to lenders.
Don’t Apply For Excessive New Credit
Putting in applications for too much new credit could result in several inquiries on your credit report.
While opening a new credit card can help boost your credit limit on the whole, the act of putting in applications for credit warrants scrutiny on your credit report. Multiple hard queries and scrutiny can have an adverse effect on your credit score.
Hard queries can last for two years on your credit report.
Pay Your Bills on Time
The final tip is that you should pay your bills on time. Whether it’s a phone bill or your light bill, pay them on time. Lenders and creditors check this information.
When they access your credit report and request a credit score for you, they’re keenly interested in how efficiently you pay your bills. That is because future performance is often considered predictable by past payment performance.
Payment history makes up 35% of your credit score. You don’t want to get behind while you’re trying to build your credit.
In review, the ten easy and efficient ways to build credit are to,
- Open a bank account,
- Take out a small loan,
- Have a good employment history,
- Get a credit card,
- Do not accumulate debts,
- Don’t open too many credit accounts,
- Monitor and conflict errors on your credit report,
- Become an accredited user on another person’s account,
- Don’t appeal for excessive new credit,
- Pay your bills on time.
All these actions are very attainable. You just have to make it happen. Once you do, you will start building credit in no time.
When did you start building your credit? Did you use any of these easy ways to build credit?