Building Credit

The American economy runs on credit. You need good credit to get a car loan, a mortgage, or any other big- ticket purchase. Your credit score will affect your interest rates as well. Unless you’re a trust fund kid, it’s likely you will need to take out a loan at some point in your life. Credit also factors into your ability to rent a home, get certain jobs, and how you set up utilities. Whether you’re just starting out with no credit or attempting to fix a poor credit history, these basic steps will set you up for success.

 

Secured Credit Card

A secured credit card is a great way to begin building credit with minimal risk. Secured credit cards work similarly to debit cards. Most secured credit cards will ask for a minimum of $200 balance before issuing your card, though some have lower minimums, in exchange for a limited credit line. If a secured credit card has a deposit of $200, they may cap you at a $200 credit line. Over time you may put more money on the card for an increased credit line. When applying for a secured credit card, ensure that you understand the terms and know when and how much you need to pay each month to keep growing your positive credit. Use your secured credit card to pay for one or two reoccurring bills each month, just as you would with an automated payment from your checking account. This will help to steadily build your credit over time.

 

Pay On Time

If you have student loans, a car loan or any other loans, prioritize them immediately and pay them on time each and every month. Late payments can add up and will become derogatory marks on your credit score. If you know you will be behind on a payment, reach out to the creditor to make arrangements to get back on track as soon as possible. Late payment history can stay on your credit history for up to 7 years.

 

Make Micropayments

By making more frequent payments throughout the month, you are able to keep your credit card balances down and will improve your credit score.

 

Request Higher Credit Limits

By raising your credit limit, but keeping your balance the same, you can lower your credit utilization and increase your score without making major changes to your budget or lifestyle. Make sure you’re maintaining the same healthy credit habits. Do not use higher limits as a way of living above your means. This is how people end up with overwhelming credit card debt and even poorer credit scores.

 

Become An Authorized User

By becoming an authorized user on the account of someone who has stellar credit, you can improve your own scores. This person will generally be a relative or spouse. They do not need to give you your own card, you do not need to have any access to the account or ever use it to be an authorized user. This will fatten up a meager credit history quickly.

 

Keep Credit Cards Open

If you’ve paid off large credit card debt, you may want to wash your hands of it and close the credit card. This can actually have a negative effect on your credit. Keep the credit line open, put one reoccurring bill on the credit card to keep building your credit.

 

Building or repairing credit can seem daunting, but with a few small changes and the right mindset, you can make a big impact on your credit score.