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How to Build Credit 

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By: Juliana Norton
Jun 16, 2020 • 2 min read

Building Credit 101

Building credit is necessary to obtain many things in your adult life. Whether you’re buying a house, car, or getting a personal loan, having great credit is essential to making these processes available to you. Good credit is a way of showing others you are responsible and can be trusted to handle and pay back the money. Often, people delay starting to build their credit, and those who have a low credit score believe there’s nothing they can do. This shouldn’t be the case, so here are a few tips to build or rebuild your credit. 

brown wallet

Credit Cards

When used right, these can be a vital source to uplift your credit score. One essential token to keep in mind is to not bite off more than you can chew. The primary purpose of your credit card should be to build your credit, not pay something else off. A good idea would be to only use a specific card for gas or groceries. Because of this, you didn’t increase any spending, so it shouldn’t be a problem to pay it off at the end of the month. A rule of thumb is to use less than 10% of your credit limit and ALWAYS pay it back on time. Try not to let your balance rollover because it will be counted as a missed payment. As long as you’ve made all your payments on time, eventually, you could get a credit limit increase. This is great! It means you’ve proven to be reliable; thus, you’ve been granted more responsibility, and your credit score will increase. Keep in mind, your credit score might not be updated right away.

Keep Track of Your Finances

When you have multiple lines of credit open, it can be challenging to keep track of all your payments. To ensure you don’t miss a payment and to monitor the health of your credit score, there are a few apps you can download. Albert is an app that keeps track of all your finances. It has many useful features where you can see how much money you’re spending per month on specific services, and it gives advice to where you can cut back. There are real representatives you can reach out to for questions at any time throughout the day. Albert has an abundance of benefits, so this app could really be a lifesaver. Another app is Credit Karma. They pull your credit score from Transunion and Equifax (two out of the three major companies that curate your credit score) and show you what specifically goes into it. This includes your age of credit history, the number of hard inquiries, the percentage of on-time payments, credit card utilization, and more. Credit Karma also does more than just assess your credit score, like searching for lower car insurance rates and recommending credit cards based on your likeliness for approval. 

Pay Off Outstanding Debt

The sooner you pay off your debt, the faster your credit score will rise. This can be something as big as student loans or as small as a missed cable bill. Understandably so, this may not be possible to accomplish right away. Though, if you slowly pay $10 or $20 whenever you can, it will slowly make a difference. Large amounts of debt can be very intimidating. The key is to make it as small as you can as fast as you can, so you’re able to start rebuilding. 

woman standing and holding smartphones

Total Accounts

You should open as many open accounts as possible, without becoming overwhelmed. Try to have some variation as well. This shows you can understand how to handle multiple forms of credit and can be trusted. It’s also important to not close accounts, even if you don’t use them. Say you got a credit card as soon as you turned 18, but it’s not something you want to use anymore. That is normal, but closing the account says you’re unable to handle that responsibility. Instead, sometimes it is better to let it go unused. 

Avoid Derogatory Marks

These can occur when you miss a payment or file for bankruptcy. This may be detrimental to your credit score because these can stay for seven to ten years without disappearing. To prevent this, set up automatic payments. Life is hectic at times, and it can be difficult to always remember to pay your balance. If your card doesn’t have this option, set a recurring reminder on your phone for a specific day each month. 

As always, each situation is unique and should be treated as such. If you follow these tips and put in some research regarding your specific credit needs, that score will definitely slowly improve. What are your best financial tips? Tweet us and share! For more helpful content, check out our blog. 

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