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Having solid credit is a crucial part of being a responsible adult. It allows us to secure a place to live, purchase transportation, and overall, acts as the foundation that helps us create our lifestyle. As such, it can be intimidating to begin the credit process, but with these simple tips for building credit you’ll be well on your way to a well-established future.
Stay Committed to Your Payment Schedule
If you want to establish a good credit history, you have to prove that you’re reliable to lenders. The number one way to do this is by making your credit card payments on time and paying them in full each month. Only paying the minimum balance each month could result in building debt rather than credit due to the stacking interest. Paying your bill in its entirety will keep the interest low—saving you money in the process.
You’re also going to want to establish a long-term history of making your payments on time. While it’s good to make one or two payments, it’s crucial that you’re holding yourself to that obligation for a long period of time. Having a lengthy credit history will make your credit score go up due to your visible commitment to it, thus proving you’re more reliable than those who only made their payments a few times.
Don’t Use All The Available Credit
Though one of the main ways to develop credit history is to use a credit card, it’s important that you aren’t using every dollar of your available credit each month. It’s recommended that you use no more than 30 percent of your available credit line. This strategy assures that you aren’t going to overspend, so you’ll be more likely to make your payments in full. Plus, it will keep your credit score from decreasing.
To make sure that you aren’t spending more than that 30 percent, it’s important to learn how to check your credit score as well as the credit reports from your provider. Although one of the most common credit myths says that checking your score will lower it, as long as you check with an official credit reporting site your score shouldn’t be affected. It’s imperative that you stay informed of where your credit is at in order to continue growing it.
Don’t Open Several Accounts at Once
Since the age of your credit account affects your credit score, opening too many new accounts can lower your overall account age average. As the average lowers, your credit score will also decrease, and you’ll have to build that history back up over time.
Another thing to consider is to not close your old accounts—even when you’re no longer using the card. Keeping accounts open for as long as possible benefits the length of your payment history and gives you access to more usable credit while remaining under 30 percent. Unless your card has an annual fee, allowing the account to stay open can greatly further your credit goals.
Opt Out of Using a Credit Card
Though using a credit card is one of the easiest ways to develop your credit history, you don’t have to have one to begin building credit. Taking out student loans, auto loans, mortgages, and even rent can positively affect your credit score. As you make these payments on time, the respective companies often report your history to credit reporting agencies; this can affect your score just like a credit card would. The important thing to remember here is that you need to make sure that lenders and landlords are reporting your history in order for your credit to grow. Be sure to ask your lender and landlord if they offer that service.
