How to build credit score

Darryl Bachmeier
Oct 8, 2020
Finance


Each financial decision you take can affect your credit rating and your ability to obtain work, credit, credit cards, basic utilities and services, whether renting an apartment or leasing a car. Good financial choices help lenders and businesses find you at low risk. The chances of getting financial opportunities, including higher credit limits and lower interest rates, are high.

Credit scores vary. If you have never had a loan or you have made financial mistakes, prudent decisions and responsible actions, over time, a positive credit report can lead to financial benefits.

Wondering how to set up a mortgage loan? You have come to the right place.

Why should you create a credit score?

Your credit history represents a record of your ability to repay debts on time. This is an important piece of information that a financial institution will review when considering whether you can lend (e.g. credit card, loan, credit tax or mortgage). Understanding how debt works and creating a good credit history is important. Good credit score may help you borrow money in the future.

How important is a credit score?

A good credit history and credit rating shows your ability to repay any money you borrow on time. One or more than one missed or late payments can cause a bad credit history. Hence, it affects your credit score and can make it harder for you to borrow in the future.

How long should you take to build a credit score?

If your credit report contains negative information such as late payment, public registration item (e.g., bankruptcy) or multiple inquiries, you may have to wait to pay your fees. Time is your partner in enhancing your credit score. 

How to create a credit history that benefits you:

Start early

The length of your credit history is an important factor in determining your credit rating.

Start slowly

It takes time to build good credit. Exaggerating it by applying for multiple credit cards at once can damage your credit score from the start. Applying for credit cards, bank loans, or a new mobile phone account can all create difficult inquiries. A lot of difficult credit inquiries indicate that you may be taking on too much debt and have a lot of repayment liability and risk. Instead, apply for a manageable card.

Get a student credit card

Many financial institutions offer credit cards specifically designed for students, which are ideal for teaching financial responsibility. These cards have low credit limits and can even start with low introductory interest rates.

Reward points can also be part of the deal, so you can earn when you spend. These cards may have offers such as cashback or cash on purchases such as entertainment or food.

Secure credit card

If you do not qualify for a regular credit card or student card, a secure credit card is a great way to get a loan. Secured cards require a deposit from the lender. The amount you put down will be credited to the account, so if you deposit $500, the credit limit for your card will be $500.

Bills are paid monthly just like an unsecured card. If you delay the payments, the lender will use your outstanding balance as your security deposit. If you deposit all your bills on time and show that you are financially responsible, the bank will release the security deposit after a certain period.

Keep balances low

Increasing your credit cards can negatively affect your credit score. Mild use of your cards is best. The less you charge, the better. The balance shown on your credit report - usually the balance of your last statement - affects your overall score, so maintaining a low balance will help build credit.

Pay on time

Your timely payment history is one of the common influential factors while creating a positive financial history. Paying credit card bills on time is important to generating credit, but do not forget your other bills.

It is equally important to observe your monthly bills such as electricity, cable and telephone bills are paid within 30 days from their due date. Default bills and remittances will remain on your credit statement for up to seven years.

Practice these good credit practices to build your score:

Try to make your payments on time and pay as little as you can

Paying credit card or loan payments on time is every time, the most important thing you can do to build your score. 

If you are using credit cards, you should keep your credit usage low

Usage is a percentage of your credit limit that you use. We recommend keeping your credit usage less than 30% on all cards. If your usage is not too high, it is better for your score.

Avoid applying for multiple credit accounts together

Apps for credit can cause a small, temporary drop in your score. Many applications can cause significant damage.

Keep credit card accounts open

If you do not have a compelling reason to close an account, such as a high annual fee or poor customer service, consider keeping it open. You could also consider lowering it or changing your credit limit to another card. Closing an account will affect your credit usage and reduce your average account age.

Check your credit scores and statements

A credit report or history is a record of how you have used credit in the past. Your credit score predicts how you will get credit in the future using the information in your credit statements. You need to monitor both to see if there are errors and to see if your debt building efforts are paying off.

Bottom Line

Using credit wisely in conjunction with regular savings and investment is a powerful way to meet your financial goals.

The combination of credit products can improve your credit score. Make sure you can repay any money you borrow. Otherwise, taking on too much debt can affect your score.

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