How to Build Good Credit

Good credit is important in a variety of ways. Creditors use your credit report to make their decisions on whether to extend credit to you and the interest rates you will qualify for. Insurance companies, rental places and most prospective employees also look at your credit report. Building and maintaining a great credit rating is therefore a great step anyone should take.

Below are various ways to build good credit:

ESTABLISH A CREDIT HISTORY by applying for a credit card and an installment loan. If you don’t use credit, you will not establish a credit history. Having an existing credit history shows creditors that you have experience in using credit, and thus can trust you with more credit and/or loans. So, even if you don’t need it, apply for a credit card, and use the amount that you will repay on time.

CHECK YOUR CREDIT REPORT. So you can be able to make corrections in case of any errors. Every once a year, you can visit where you can access your reports from the three major credit-reporting companies (Equifax, experian and trans union). Note that this free option will not tell you what your score is, but at least you get to see all the information contained in your reports, thus a chance to check for errors and make corrections.

PAY BILLS ON TIME. Paying your bills on time is a very useful way to build good credit. Creditors report your payment status to the credit bureaus. So, plan on paying all your bills before they become due. If it so happens that you are unable to pay the entire credit card balance off, at least pay the minimum amount due, so it won’t be reported as late. Besides, when you are past due, you incur more fees, which might eventually make it harder for you to repay the loans, thus damaging your credit even further.

KEEP YOUR CREDIT BALANCES LOW. Maintain higher available credit on your cards, thus lowering your overall debt balance. This improves your credit score. If possible, pay back the full amount at the end of the month, so you avoid being charged interest. Having low available credit indicates that you are having trouble repaying your loans.

MAINTAIN A CHECKING AND SAVINGS ACCOUNT. Creditors consider having bank accounts a good sign and view you as being reliable. So, open up one and keep it in good standing. Plus, you will use your savings account to save some money that you can rely on in the future, instead of borrowing or using a credit card (where you have to pay interest and/or fees).

AVOID APPLYING FOR MANY ACCOUNTS AT THE SAME TIME. Every time you apply for a loan or credit card, it shows in your credit report. This lowers your credit rating. And the creditors consider this as a big risk to them; they can’t really trust someone who has applied for a lot of credit in a very short period of time.

DON’T LET YOUR ACCOUNTS GO INTO COLLECTIONS. If you are unable to pay off your debt on time, try to call your creditors to set up payment arrangements, before they send your accounts into collections. Once your account goes into collections, it adversely affects your credit. Collections also stay on your account for a long period of time, so don’t let this happen to you.

Any effort that will help build a good score is essential for one’s financial health.