7 ways to build a strong credit score
Taking steps today to build a strong credit history may save you a world of hurt tomorrow. Without a strong credit history you’ll find it difficult to get a mortgage, land many jobs, get loans for automobiles, or even get auto insurance.
- Pay your bills before the due date
Paying early, month after month, allows you to build a good standing with the creditors, so they may be more likely to grant leniency when unexpected emergencies arise.In addition, if you’re going to be late with a payment one month, call your creditor and ask what kind of arrangements can be made. The Federal Deposit Insurance Corporation (FDIC) advises that many of them are willing to work with you so that your credit isn’t negatively impacted. They will only do so, though, if you communicate what is going on.
- Pay credit card bills in full each cycle
The FDIC also recommends paying your credit card balance in full each payment cycle. If you cannot do that, consider making the largest payment possible until the credit card bill is paid in full. Carrying the debt for long periods of time is where most people get into trouble with credit card debt.
- Correct credit reporting errors
Order a copy of your credit report each year, and look it over to find any credit errors. Report those errors immediately and follow up to make sure they are corrected.
- Avoid having too many credit cards
Credit cards can be incredibly convenient tools to have at your disposal. Having too many, though, can allow your spending to spiral out of control quickly. More importantly, it can be a red flag for lenders. Your total available credit should not exceed 20% of your yearly income, as the FDIC advises.
- Be aware of how much you borrow
It’s important to be aware of how much money you’ve borrowed through credit-card spending, educational loans, home loans, auto loans, etc. Staying on top of the actual number helps you to closely examine whether or not you need to make certain purchases. It also makes you keenly aware of your debts and may help you avoid maxing out your credit card limits.
- Do not overdraw checking or savings accounts
If you’re having difficulty keeping your checking and savings accounts in the black, banks will consider that a red flag. Many will believe this is a strong sign you aren’t managing your money well and will be reluctant to lend you money as a result. Keeping your accounts stable lets them know you are responsible with your money and take your responsibilities seriously.
- Create a budget
Make sure your budget accounts for and meets all your debt requirements. You don’t want to go to all the work of creating a budget only to discover it isn’t sufficiently meeting the demands of your debt.
One final note about holding on to old credit accounts in which you are in good standing. The Consumer Financial Protection Bureau (CFPB) says that maintaining a favorable relationship with a lender for a long period of time suggests that you are a good credit risk.
Use these suggestions to build a strong credit score that may help you save a great deal on interest rates and to get the loans you need when they matter most.