How to build good credit in 10 easy steps

If you want to improve your financial situation, here is a good New Year’s resolution: improve your credit score.

Many New Year’s resolutions failed because they were so extreme. Think of all the crazy weight loss and money saving goals that appear at the beginning of each year.

This resolution is different. No extreme measures are required. But there are no shortcuts. Building good credit is a goal you need to commit to for 12 months each year.

How to build good credit in 10 steps

Are you ready to make 2022 the year when you finally prove your credibility? Here is how to build good credit in 10 steps.

1. Follow your credit report

About one-fifth of credit reports contain inaccurate information.Make sure you have access to your report Annual credit report, Instead of one of the many sites that offer “free” credit scores but let you write down your credit card number to sign up for a trial. If you find any content that you think is inaccurate or any account you don’t know, please file a dispute with the bureau.

Your credit report will not show your credit score, but you can use a free credit monitoring service to check your score. (No, checking your credit will not affect your score.) Many banks and credit card companies also provide you with credit scores for free.

Expert tips

If the bureaus agree to delete information from your credit report, it is expected to wait approximately 30 days until your report is updated.

2. Pay the bill. on time.Every month

Yes, you know what we say: Paying bills on time is the first thing you can do to build good credit.yours Payment history Determines 35% of your score, which is higher than any other score Credit factor.

Set up any bills that can be automatically paid at least the minimum amount to avoid missed payments. If you can afford it, you can always pay extra.

A strong payment history takes time to build. If you delay the payment, they will remain on your credit report for seven years. The good news is that they have done the most damage to your score in the first two years. After that, the impact began to fade.

3. Build credit, even if you make a mistake

You usually need a credit card or loan to establish a credit history. (Sorry, all these rent and utility bills paid on time are rarely reported to the credit bureau, so they are not helpful to your score.)

However, if you have poor credit or you are new to credit, it is difficult to get approval for a credit card or loan. Look for cards specifically designed to help people start or rebuild credit. Store credit cards can also be a good option, as they only allow you to make purchases at specific retailers.

4. If you are not eligible for a regular card, please open a security card

Open a family Secured credit card When you can’t get approval for a regular credit card or loan, this is one of our favorite ways to build a positive history. You deposit a refundable deposit, which will become your credit limit.

After paying on time for about a year, you are usually eligible for an unsecured line of credit. Just make sure that the card issuer of your choice reports your payment to the credit bureau. Find a card with an annual fee of no more than $35. Some of the security card options we like (no, we won’t get paid for saying this):

  • Found it safe
  • OpenSky Secure Visa Card
  • Secure Mastercard from Capital One

5. Request an increase in the limit.Pretend you never got it

Increasing your credit limit will help your score because it will lower your Credit utilization. This is the credit score that represents the percentage of credit you use. The standard recommendation is to keep this number below 30%, but in practice, the closer to zero the better.

If you have outstanding credit, please ask your current creditors for additional credit instead of applying for new credit.In this way, you can avoid lowering your Credit period, This may affect your score.

The disadvantage of a higher credit limit: You will have more money that does not belong to you to spend. In order to get the maximum credit score from increasing the limit and avoid paying more interest, please make sure not to increase your balance.

Expert tips

Don’t believe the myth that you carry with you Small credit card balance Help your credit score. Paying off the balance in full every month is the most beneficial to your score, and it can also save you interest.

6. Prioritize credit card debt over loans

Solving credit card debt will help your credit score better than repaying other debts (such as student loans or mortgages). reason? Your credit utilization rate is completely determined by your credit limit.

Reward: Paying off your credit card debt first will usually save you money, because credit card interest rates are often higher than other types of debt.

7. Keep the old account active

If you haven’t paid the absurd fee, please keep your credit card account open after paying off your balance.The credit scoring method rewards you with Long-term credit history.

Make a purchase on this account at least every three months, as credit card companies usually close inactive accounts. Then pay off in full.

8. Optional application for new credits

When you apply for credit, it causes Hard inquiry, Which usually drops your score by a few points. Therefore, avoid frequent applications for new credit cards, as this may indicate a financial crisis.

However, if you are applying for a mortgage or loan in the market, please don’t worry about multiple queries. As long as you limit your shopping to a 45-day window, the credit bureau will treat it as a query, so the impact on your score will be minimal.

9. Still at a loss?Debt consolidation loans may help

If you are struggling with credit card debt, Consolidate your credit card debt A loan may be a good choice. In short, you use a loan to clear your credit card balance.

You will get the simplicity of a one-time payment, and since loan interest rates tend to be lower, you will usually pay less interest. (If you cannot get a loan with a lower interest rate, this may not be a good choice.)

By using a loan to pay off your credit card, you can also free up credit and reduce your credit utilization.

Many debt consolidation loans require a credit score of approximately 620. If your score is below this threshold, please work hard to improve your score a few months before applying.

10. Maintain your credit score

All the credit monitoring tools out there can easily follow your credit score. Although it is important to build good credit, we must look at the big picture. Some final thoughts:

  • Your credit score is not a report card of your finances. It just measures your degree of risk to the borrower.Have a Emergency fund, Saving for retirement Living a decent life is important to your finances-but these are Things that don’t affect your credit score.
  • The lender looks at more than just your credit score. Have a low Debt-to-income ratio, A decent down payment and a stable salary will increase your chances of being approved when making a large purchase, even if your credit score is low.
  • If you can’t pay for the necessities, don’t focus on your score. If you are having trouble and have to choose between paying a credit card and paying rent, serving food on the table or getting medical care, paying a credit card is always secondary. Of course, if you cannot pay, talk to your creditors because they may have options.

Focus on your overall financial situation and your credit score may also improve. But remember, although credit score is important, you are more important.

Now, achieve these goals in 2022 and beyond.

Robin Hartill is Penny Hoarder’s certified financial planner and senior writer.Send your tough money questions to [email protected] Or chat with her Penny Hoarders Community.

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