5 Crucial Tips to Build Your Credit Score
David Bakke writes about finance topics on Money Crashers, a blog focused on educating readers about important topics like budgeting, living frugally, saving for retirement, investing, and getting the most out of life.
Having a solid and healthy credit score is the first layer of a solid financial foundation. Your credit score affects many aspects of your financial life, including insurance premiums and loan rates. Your score can even influence your ability to get a job or find a place to live.
The higher your credit score, the better off you will be, so follow these tips to build up your score.
5 Ways You Can Increase Your Credit Score
1. Pay Your Bills on Time and in Full
Paying late is one of the fastest ways to tank your credit score, but paying in full and on time every month is an easy way to boost your number. Even one late payment can hurt your credit score in a pretty significant way.
Paying your monthly bills for water, electricity, cable TV, and Internet should be a no-brainer. If you can, you should also pay the complete balance on your credit cards.
If you can’t pay in full, at least make your minimum payment on time. Even when times are tight, you can’t afford the damage of a late payment. Try to eliminate all outstanding balances as soon as possible.
2. Open New Lines of Credit
One of the biggest factors in determining your score is the percentage used of your total available credit. Opening new lines, therefore, can improve your score. You want to take advantage of any credit available to you.
Do not, however, open too many lines of credit in a short period of time. Your best move is to spread things out, because starting multiple accounts all at once can cause damage.
3. Use Your Credit Cards
Even among people who know to open new lines of credit, a common misconception is that you should open accounts but use your cards as seldom as possible.
Remember that credit card companies have been catching on to tip #2, and they will reduce your credit limits or even close your account if they see extended periods of inactivity. If you open a new line of credit to improve your score, do not let this credit card go completely unused. Break out the seldom used cards once every few months, put a few small purchases on your account, and pay them off in full. That way, you can avoid having your total amount of available credit decreased. However, keep in mind that it’s important to learn how to use a credit card wisely in order to avoid falling deep into debt.
Credit scoring agencies want to see you using your card and making your monthly payments in full. This is how you build a solid credit history and raise your score. Just don’t spend so much that you end up breaking rule #1.
4. Never Close Old Lines of Credit
Did you know that closing a credit card can hurt your credit score? If you have old cards that are still open and active, do not close them unless you absolutely need to (i.e. high annual fees). Instead, recognize the benefits of having available credit, and treat these cards the same way you treat your newer lines of credit. Use them sparingly to keep them active and pay off the small purchases you make. You’ll see an improvement in your score.
5. Check Your Credit Report
Now that you know the kind of activity that can help improve your score, don’t forget the importance of monitoring. When I first checked my score, I found several discrepancies that were negatively affecting my rating. Most of the errors were easy to fix, but if I hadn’t checked and addressed the problems, my score would have stayed undeservedly low.
You should never pay to view your credit report, no matter what the predators out there will tell you. You can view your credit report once per year from each of the three credit reporting agencies by going to the government-mandated website AnnualCreditReport.com.
It's a really good idea to get your credit score up as high as possible when you are in the market for purchasing a home. It can save you thousands of dollars.
Those are great tips! I high credit score is key to cheap money!
One thing that really helped me boost my score was getting a secured credit card. It helped me build my credit up without taking on any risk.
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