Jennifer Moore
15 tips on how to build credit
- Pay down balances
The best place to start improving your credit score is to pay toward what you owe. When you think about what loans to pay off first, make a plan. If your car loan has a high interest rate and your student loan has a low interest rate, it’s in your best long-term interest to pay off your car loan, first. That means you’ll pay the minimum amount required on all loans, and any extra will go to the loan you want to pay off the fastest.
- If you have debts in collections, pay them off or negotiate a plan
When you access your credit report, you’ll be able to see which lines of credit and which loans are in good standing. You may know about loans that are in collections, or you may be surprised by an account you thought was taken care of. In any case, call the holder of those loans and either pay the amount or set up a payment plan. Ask them how to get out of collections. When you have accounts in collections, your credit score can only rise so much.
- Set up automatic bill payments
If you struggle with remembering the myriad of bills you need to pay, and have been late paying because you forgot, think about setting up automatic payments. Automatic payments can help you budget wisely. Take a look at when your income comes in during the month, and then thoughtfully place your bill withdrawals so there will always be enough money in the account. When you set up automatic bill pay, your credit report will show that you paid on time consistently.
- Pay off your credit card balances every month
Don’t wait to pay off your credit card balances. If you have a high credit card balance, that shows you are utilizing a higher percentage of your credit. You want to use your credit, but you don’t want it accumulating. Only purchase, on credit, what you can pay off at the end of the month.
- Dispute inaccuracies in your credit report
When you get your credit report from any of the big credit score holders, check to make sure every account is one that you opened. Maybe your report shows you were late making a payment when you weren’t. You can dispute the inaccuracy and get that removed from your report.
- Limit your new lines of credit
Pay off your loans before acquiring new ones. Having too many credit cards open at once will negatively impact your credit score because the more money you owe, the less you’ll be able to pay all of it back.
- Apply for new loans all in a short time period
If you do need to apply for a loan, shop around first. You might want to have several places pull your credit score so you can find the institution that will give you the loan with the lowest interest rate. Credit score companies treat several hard pulls on your credit score for the same type of loan in a short time period as a single pull, because they know that borrowers will be shopping for rates.
- Diversify the types of credit you have
If you have too many of the same type of loan, that could signal that you’re taking on more debt than you can repay. Having a mix of different loan and credit types creates diversity in your report and shows a responsible, stable situation.
- Get a secured credit card
If you’re trying to build from scratch or if you’ve had difficulty with credit cards in the past and want to know how to build credit, a secured credit card is a great option. A secured credit card requires a security deposit–say, $150, which then becomes your limit. You can borrow up to that amount before you have to pay it back. It is easier to qualify for a secured credit card and can improve your score.
- Add rent payments to your credit
If you pay your rent on time, you can build your credit score with your rent payments. All three credit bureaus accept rent payment information to add to your credit report. There are a few ways to get them that information. Some systems go through you, and some go through your landlord.
- Add bills to your credit
Similarly, you can add your utility bills to your credit report if you work with the right companies. Experian, for instance, has a product that allows you to do that. Your bank or credit company may have opportunities to report your utility payments as well. You can also ask your landlord to report your utility payments to the credit bureaus.
- Keep old accounts open if feasible
If you have an old account, it might be a good idea to keep it open. Keeping an account open can add longevity and history to your report, which shows lenders you’ve maintained good standing for a long time, and are more reliable. However, if that account has a high interest rate, a minimum balance or monthly fees, it might be better to close it.
- Protect yourself against fraud and identity theft
One of the easiest ways credit scores can tank is if someone else uses your information and takes out a lot of debt in your name without your knowledge. Protect yourself by using a password manager to keep all your passwords safe. Don’t give out information unless you’ve contacted that person or company and are on a secure connection.
- Asses your debt-to-income level
If your debt level rises too high, lenders will assume your income cannot support it. Think about improving your personal finances before you take out a new loan.
- Keep tabs on your credit score
Your credit card or bank may offer you insight into your credit score throughout the year, but you can access your full report from the three big credit bureaus, Experian, TransUnion or Equifax. You get a certain number of free looks at your credit report through the year.
What's the takeaway?
Your personal finances are constantly changing, and you need to maintain them throughout your life. Make it a practice to check your credit report to deal with risks and issues that might crop up. You should also periodically reevaluate the loans you have. Refinancing is a great way to make your loan terms more favorable by getting a lower interest rate, a shorter term, or taking advantage of a program with zero hidden fees, like RateWorks’.
RateWorks can help you refinance your car loan quickly and easily. If your car has fewer than 140,000 miles on it, is less than 10 years old, and if you’ve made at least three payments, get a free quote today. You could save hundreds!
