How to Build Your Credit – Part 2
Now that you have the basics under your belt, we can start moving on to some of the long-term ways you can help build your credit. The first thing you must accept in regards to building credit is that it takes a while – on average, about six months – for your efforts to start to bear noticeable fruit. This is because you can only build your score by practicing good habits. The good news is these habits are what potential lenders see, making them more likely to offer your credit or financing in the future.
- Check Your Credit Report – Your credit report changes every month. The easiest and most beneficial thing you can do for your credit health is to monitor your credit report. There are many reputable credit repair sites, and is worth the small fee to keep track of your credit report. If there are any errors or discrepancies, it is always better to fix them right away as opposed to finding out before its too late.
- Make EVERY Payment On Time – You will do more damage to your credit score by making late payments than almost any other preventable practice. If your income is outweighed by your monthly output, then it’s time to consider where you can make some significant cuts. Making all of your monthly obligations on time will continually increase your credit score with every passing month. Miss enough monthly payments and your creditors will send you collections or sell your account to a third party – either one spells a huge decrease in your credit score.
- Keep a Low Credit Utilization – ‘Credit Utilization’ is a fancy way of saying balance-to-limit ratio. If you have a $1,000 limit on your credit card and you keep a balance of $900 on that card, it is going to hurt your credit health and bring down your credit score. It is better to pay the balance off in full every month. However, if you do need to keep a balance it’s best if you keep no more than 30% of your credit limit.
- Keep Accounts Open – Keeping a long credit history goes a long way in helping you establish a good credit score. The only accounts we recommend you closing are any unused cards that also carry an annual fee. The more active credit history you can show on your report, the more likely lenders and other financial institutions are likely to extend you credit or other opportunities.
- But Don’t Open too Many – If you don’t have a lot of credit history, you won’t solve this problem by opening several new accounts in a short amount of time. This actually lowers and hurts your score more than helping it. It isn’t how much credit you have, it’s how you’ve utilized and responsibly used the credit you’ve had available.
Good habits are much more difficult to cultivate than bad ones. However, with a little patience and a little work, the good credit health habits you form will provide you with more options than you realize.