How To Build Your Credit

By Alex

3rd in Our First Time Home Buyer Program

Your credit rating will have a huge impact on your lifestyle. Bad credit can sink any chance of purchasing a home, buying a new car, or getting lines of credit.  Even if you can get credit, it will come at a high cost.  The level of your credit rating determines what interest rate you will pay for the lifetime of your loan. Before you buy, do everything you can to lift your credit score as high as possible. A good credit score will allow you to obtain better credit terms and lower interest rates. 

Credit scores are broken into five categories: very poor credit ranges from 300 to 579, fair credit ranges from 580 to 669, good credit ranges from 670 to 739, very good credit ranges from 740 to 799, and exceptional credit is anything 800 or above. 67% of Americans have a good FICO score or better. 

You can save thousands of dollars over the life of a loan if you can raise your score to the next level. The higher your level, the better terms you will get on a mortgage or car loan, and the less you will pay in interest. For example, it is not unheard of for someone with an 800 credit score to purchase a car with an interest-free loan! Talk about saving some money!

There are a lot of companies out there that can help you raise your credit. But do you really want to pay someone else for something you can do for free?  All it takes is discipline and a plan.

pexels-cottonbro-3944405The following strategies will help you raise your credit to the next level:

1) Pay your bills on time each month.

2) Avoid having too much debt.

3) Avoid having too many open credit accounts.

4) Keep your credit balances as low as possible, ideally at or below 30% of the limit.

5) Avoid too many credit inquiries. When you submit an application for credit, this results in a "hard inquiry" on your credit report. Hard inquiries can count for about 10% of your credit score. Whenever you plan on applying for credit, do your research first, then only apply for one line of credit.

6) Cancel unnecessary credit cards, but keep your older cards. They show a history of payment. 

7) Once you pay off your credit cards, rotate them. File all but one away. Use the one, then pay it off and file it away. Pull out another and repeat. This way, you are showing the use of each card, but you are also keeping it paid off, showing responsible use of credit.

Good credit takes work. The best way to develop good credit, aside from the above steps, is to have a couple of major credit cards, (the older the better), have a mortgage, and have some other type of installment loan. And make all payments on time.

If you have negative credit items on your report, check for accuracy and contact the credit bureaus to remove any incorrect reports.  If there are accurate negative items, they will usually fall off your report within 7 years. Keep your momentum going. It may take some time to get your credit score up, but you will be rewarded with years of low interest rates, freeing up money for what you really want!