Must-Know Tips to Build Strong Credit
The following is provided for informational purposes only and is not intended as credit repair.
Developing good credit is an ongoing process that starts with understanding how credit reporting works. While paying your bills is an essential step in the right direction, there are other smaller, lesser-known steps that are key to establishing and keeping a clean credit report and a good credit score. Applying these steps will go a long way in giving you the credit history you deserve.
Check Your Credit Report
First, check your credit report regularly to ensure that the data included is accurate. While you want to look out for obvious errors, such as accounts that may have been opened as the result of identity theft, there are other smaller errors that may exist that can harm your credit.
In addition, look at your name on the report to ensure that it’s accurate. Something as obvious as changing your last name from your maiden name to your married name could make a large difference in your ability to obtain credit, as your married name and maiden name may not be linked within your credit history.
Build Credit History
Next, make sure that you actually have a credit history. Without any sort of credit history to go on, lenders have a difficult time evaluating whether or not you are a risk. Keep in mind that each individual has their own credit file and report, so spouses will each need credit cards and/or loans in their own name.
If you're a complete credit newbie, you may need to start with a secured credit card. The key is to open a small number of amounts being using credit. That doesn't mean that you need maintain a balance or pay interest charges. Repaying all of your credit charges in full before the next billing cycle is the best way to establish credit without costing yourself any extra money.
Negotiate With Creditors
Being loyal to your creditors is the next step. Creditors like to see a strong history so keeping cards open for a long period of time is beneficial to your credit score.
That doesn't mean you have to live with the less than ideal terms you agreed to when first establishing credit. Rather than closing old accounts in favor of opening new accounts with better terms, consider contacting your existing lender and asking to modify your account. Ask about increasing your credit limit, reducing your interest rate, and waiving any annual fees, if applicable.
Keep Available Credit High
Overextending yourself, taking out too much credit card debt, and maxing out your available balance can be damaging for your credit. The larger the percentage of your available balance that you're currently using, the worse that may be for your score.
If you're using over 50% of your credit limit look for ways to start paying down that debt.
Pay Bills on Time
Finally, pay your bills on time. When payments are delinquent, creditors report this information to the credit agencies, and it can harm your credit score. Timely payments of the minimum required payment or more shows creditors that you have a history of paying your bills on time.
In fact, in most credit scoring models, payment history is the single most important factor in your credit score. The negative impact from missed payments will eventually go away as long as you get caught up and don't make any further missed payments, but if you continue to miss payments or fall behind without catching up, your credit can take a massive hit.
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