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Credit scores are tricky. They’re essential for getting a credit card, loan or even an apartment, but if you don’t have a credit history, it can be hard to get any of these things. But how can you have a credit history when no one wants to give you credit in the first place? Let’s take a look at how to build up your credit so you can achieve your financial goals.
How To Build Up Your Credit
It can be difficult to know how to build up your credit history and where to get started. Here are some good credit habits you can implement to build your score and then maintain and improve it once you get started.
Start good credit habits.
Building up your credit takes a lot of work and time. It’s beneficial to follow these good credit habits to build up and maintain your credit:
- Pay your bills on time: This is a simple act that has a big impact on your credit score. Bill payment accounts for 35% of your credit score, and a missed payment can stay on your credit report for two years.
- Keep utilization low: Utilization refers to the percentage of your credit limit you’ve used. The lower your utilization, the better it is for your credit score. If you do use your credit card, pay off the amount you used as soon as possible. This will help build a good payment history and keep your balances and utilization low.
- Keep accounts open: Once you have credit cards, make sure to keep them open because closing accounts can hurt your utilization (you’ll have a lower overall credit limit), length of credit history and credit mix. To keep an account open, all you have to do is occasionally use it for a small purchase and then immediately pay it off.
Become an authorized user.
A family member or spouse may be willing to make you an authorized user on their credit card. By doing this, their long payment history for that credit card will be added to your credit history.
However, there are a few things to keep in mind. You’ll want to make sure they’ve used their card responsibly and made their payments on time. You don’t want to become an authorized user on a card if the user has a poor payment history with it.
Additionally, before you become an authorized user, it’s important to come to an agreement with the cardholder on whether or not you’ll be able to use the card and how to arrange payment to the cardholder if you do. If you are added as an authorized user, make sure to use the card responsibly — after all, your activity on the card is showing up on the cardholder’s credit report as well.
Periodically check your credit report.
Make it a goal to periodically check your credit report and review it for any unauthorized activity, errors and your progress in paying off debts. This is considered a soft inquiry, which means it won’t have an impact on your credit score. (A hard inquiry, which is when you’ve applied for a new line of credit, does slightly impact your credit score temporarily.)
You can check your credit report and score for free. Under federal law, you’re entitled to one free credit report every 12 months from each credit reporting agency (TransUnion, Experian and Equifax).
Come up with a plan.
If you have debts that you want and need to repay, it’s beneficial to come up with a plan and strategy for doing so. For example, you’ll want to create a realistic budget and then determine how much of your income you want to devote to paying off debts. If you have multiple credit cards or loans that you want to pay off, it can be helpful to focus on paying off one debt while making minimum payments on the others. Then, once that debt is paid off, you can devote the funds you were paying on the first debt to pay off the second one.
Ready To Meet Your Financial Goals?
Discover all that 7 17 Credit Union has to offer, including resources for life events, financial education tools and more, that can help you build up your credit score by becoming a member today.
