There are many benefits that come with a good credit score: a lower interest rate on credit cards, mortgage or any loan. Alternately, bad credit can keep you from being a home owner, renting an apartment, or sometimes even a job. It not only keeps you from having options, but it is also costly. For instance, if you apply for a credit card, you will most likely get a higher APR than someone with a good credit score. Therefore, starting the rebuilding process as early as possible and being responsible with credit, are key to building (and maintaining) good credit.
1. Know your credit report and what goes into credit score
Until 2021, annualcreditreport.com will provide you with all 3 credit reports every week. First, check your reports for any errors and dispute any discrepancies. Secondly, learn about all the factors that determine your credit score.The more you are aware of how credit scores are calculated, the easier it is to building a good credit score.
2. Keep purchases within your budget
Don’t spend what you can’t afford! You want to keep it to a level where you can pay in full every month or you will risk padding on even more debt. Not paying your full balance every month is one of the bad credit card habits you must avoid. Consequently, any remaining balance will be charged interest. Credit cards already come with a lot of fees, so try to minimise the fees as much as you can. Charging only what you can afford also shows lenders that you are a responsible borrower. This will make applying for credit in the future easier.
3. Keep your credit card count low
First-time credit card users should probably start with only 1 card for a few years. Student credit cards, like the Discover it Chrome, are not only great for college students, but first time applicants. Learn how to be responsible with credit and as you become comfortable, you can apply for a few more. Besides, it can be extremely easy to accumulate a collection within a short amount of time, and too many too soon can lead to trouble.
Tip: Before applying for a credit card, do a credit card pre-qualification to check your odds. Only you can see these inquiries and have no effect on credit scores.
4. Pay credit cards and all bills on time
Payment history makes up 35% of credit score calculation. It is also important to make on-time payments to bills not reported to credit bureaus. However, any bill that becomes delinquent can be sent to a collection agency. A credit card delinquency is a status indicating that you haven’t made a payment for 30 days or more. Delinquencies stay on credit reports for 7 years and are extremely damaging to credit scores.
5. Allow accounts to age
Credit age accounts for 10% of credit scores. The longer you have an account, the better your scores. Leave any old accounts with good payment history to increase credit age and improve credit. Although closed accounts are not immediately removed from credit reports, after several years, credit bureaus will eventually drop them.