Whether you’ve just graduated from college or are looking to buy a home soon, your credit score is a significant number that can impact your life. Even if you haven’t started building credit yet, there are some simple steps you can take right now to help raise it in the future. Knowing what impacts your credit and how to improve it will help put you on the right track sooner rather than later. Let’s get started with six tips on how to build your credit score.
Check Your Credit Report and Scores
The first step to improving your credit score is to check your credit report and scores. Credit agencies like Experian, TransUnion, and Equifax use your credit report to calculate your credit score. Your credit score is a number between 300 and 850 and helps lenders decide if they want to loan money to you and at what interest rate.
There are two main types of credit scores, FICO and VantageScore, and each credit reporting agency uses a different formula to calculate each one. That’s why it’s essential to check all three of your credit reports to see where your credit stands. When you check your credit report, you’ll see what’s impacting your credit and where you can make adjustments to improve it.
Pay Your Bills on Time
Paying your bills on time is the most important thing you can do to improve your credit score. The best way to get started is to pick a few bills and make sure you pay them on time every month. The easiest place to start is with your utilities. You can call your utility companies and set up a payment plan for all of your bills. One key is to make sure you are signed up for automated payment. In most cases, you can sign up for free, and the utility company will take the money out of your account each month, so you don’t need to remember to do it yourself.
Understand What Makes up Your Credit Rating
Credit scores are calculated based on five main components: The amount you owe, the amount of new credit you’ve taken on, length of credit history, new credit inquiries (what you looked at when you applied for credit), and payment history. The amount you owe is the biggest factor in your score, and paying your bills on time is the most critical factor. The amount you owe on your oldest account will drop off your credit report once it has been open for ten years, which could help you boost your credit rating. Adding new credit will lower your credit rating because it makes you a bigger risk.
Rotate Your Credit Utilization
Credit utilization is the amount of debt you owe as a percentage of your available credit. Generally, the less you owe as a percentage of your available credit, the better. If your credit utilization is high, it could be lowering your credit score. To help improve your credit rating, you can rotate your credit utilization. This means that you take the amount you owe on each account, divide it by the total amount of credit available, and then add all of your accounts together.
Once you have the total amount that is owed on all of your accounts, take that number, and divide it by the total amount of credit that you have available. This will help you lower the percentage of the debt you owe on each account each month, and it will reduce your overall credit utilization.
Add New Accounts Slowly
Adding a new credit account will lower your credit score, but it will also bring down your credit utilization if you’re paying down the account every month. But, if you add a new account, it will lower your credit score, so it’s important to add new accounts slowly. If you want to buy a car, and you don’t have enough money saved to make the down payment, you may be able to get a loan. The lender will take your credit score into account when deciding if you qualify for the loan and what interest rate you’ll get. If you don’t have any credit or have a lower credit score, it could make it more challenging to get approved for a loan.
Lock in Good Behavior with a Credit Lock
Credit locks are a new option that you can sign up for that locks your credit for a monthly fee. This will make it harder for you to open new accounts, which can help make it easier to lower your credit utilization. A credit lock will lower your credit score, but it will make it harder for you to get approved for new credit in the future. If you’re planning to take out a loan or apply for a credit card, you can lock your credit a few days before you apply to make sure it doesn’t lower your score too much and make it harder to get approved.
Closing Thoughts
There are several steps you can take to improve your credit score. First, you need to understand what makes up your credit rating. Then, you need to check your credit report to see what’s impacting your score. Once you know where you need to improve, you can make changes in your spending habits and payment timing to help boost your credit score.
