Last updated on June 29th, 2022 at 12:21 am
A good credit score is essential, it shows lenders how responsible you are, and it influences your ability to get loans, credit cards, and more. A higher credit score opens more doors for you and comes with many benefits.
If you want to build a good credit score, then keep reading. We’ve got some important tips for you!
How To Build A Good Credit Score
Why Do Credit Scores Matter?
Credit scores matter when it comes to anything related to finance. Lenders check your credit score to see how reliable you are and to predict your future behavior.
You get better rates on auto loans, mortgages, loan rates, and interest rates if you have an excellent credit score since you’re considered as a lower-risk borrower. A low credit rating can also affect your ability to rent a car, find rental housing, or even get life insurance.
Having a bad credit score is definitely something you want to avoid, and having little to no credit history means it’s more difficuly to secure a loan too. So, for a brighter financial future, the earlier you build credit, the better.
Ways to Build a Good Credit Score
- If you want to build a good credit score, an excellent way to start is to have a bank account. Banks share information about your income and transactions with lenders. This is one way lenders can see what you can afford and will then decide if they want to lend you money or not.
Next, when it comes to your credit cards, ensure that you pay your balances strategically. Your credit score will take into account your credit utilization. This refers to your credit limits and how much you owe in comparison to those limits. Lower is better, so don’t use more than 30% of your limit on any card. Then, pay the balance down, or pay throughout the month before the billing cycle ends.
You could also ask for a higher credit limit. If your credit limit goes up and your balance and spending remain the same, your credit utilization score will improve.
- Making on-time payments is a great way to improve your credit. Everything from mortgage or rent payments, utility payments, car loan payments, and bill payments should, of course, be made on time, since a late payment can stay on your credit report for years.
- You can also consider consolidating your debts. It may be a good idea to take out a debt consolidation loan from a bank or credit union and pay off everything, preferably at a lower interest rate. This will help you eliminate your debt faster and will improve your credit utilization ratio, thereby improving your credit score.
- Take the time to check your credit report and fully assess your finances. Sometimes there are errors on credit reports, and you should dispute them as the error may be pulling down your score. You can get a free credit report from the credit bureaus.
- Another option is becoming an authorized user on a relative or friend’s credit card–a friend or relative with a good credit score, of course. This means that their account activity will be added to your credit reports so you can benefit from their positive credit history.
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The Importance of a Good Credit History
Because a poor credit history will make reaching many of your financial goals difficult, and usually makes things more expensive too, you should work on building a good credit history.
Your credit score and credit history play a significant role in your financial life. They are essential when applying for a loan, a credit card account, mobile phone contracts, and sometimes applying for a job.
Building a good credit history won’t happen overnight, of course. It takes time to build a good credit score, and maintaining it over time is crucial. So remember, follow up on credit report errors, pay your bills on time, and be smart about your finances!