How To Build Your Credit Score
Unless you were born into mega wealth and never plan to borrow a cent, building your credit score is a great thing to do. It will help lower all you future payments on items such as cars, homes and other big ticket items you may plan to purchase on credit and can even effect your ability to get a job or to rent or buy a home. The important caveat is that it takes time to properly build your credit, so the earlier you start the better. The good news is that you can significantly raise your credit score, it won't take much time and if you do it correctly, you won't have to spend much money.
Never Miss A Payment
Rule number one of building your credit is to never miss a payment. Rule number two of building your credit is to never forget rule number one. The neat thing about this is that getting anywhere near your credit limit will hurt your score, so making small purchases can really help your credit. In practical terms, this means that to boost your credit score all you have to do is open a credit card account, buy a burrito or a sandwich every month and be sure to pay the bill. To make the process easier and more bulletproof, it is recommended that you hook your credit card account up to a checking account and set up Autopay. This guarantees that as long as there is adequate money in your checking account, you will never miss a payment.
Monitor Your Credit And Use Tools
To know where you're going, it's important to know where you are. If you're looking for a great way to get an at a glance view of your credit, go to AnnualCreditReport.com- they will provide you one free copy of your credit report once per year. You can also create an account with one of the major credit reporting agencies (Equifax, Experian and TransUnion). This is a great way to be able monitor your credit score on a day-to-day basis. In addition, these agencies offer tools to help you link your accounts to theirs so that you can raise your credit score more quickly. A good example of this is Experian Boost, which allows you to hook your add bill payments for basic items such as utility and phone bills to your Experian credit report. For further explanation of this, read more
here.
Don't Spend Too Much
Credit Scoring Models examine how close you come to your credit limit and they penalize you as you approach your credit limit. In fact, experts advise you spend no more than 30 percent of your credit limit at any given time. If this means doing the majority of your spending in cash or from your checking account for the time being, that's fine. The important part is to simply keep your credit usage down and never miss a payment.
Start Now And Be Patient
The length of your credit history accounts for fifteen percent of your credit score. That means to truly optimize your credit score you must establish accounts, then keep them open and paid off.
Don't Go Too Crazy
Don't apply for too much credit all at once as this can send the wrong message. According to the Consumer Financial Protection Bureau, "Credit scoring models look at your recent crdit activity as a signal of your need for credit. If you apply for a lot of credit over a short period of time, it may appear to lenders that your economic circumstances have changed negatively."
Check For Errors
Unfortunately, credit reporting agencies can make mistakes in calculating your credit score. Checking your credit with AnnualCreditReport.com or one of the credit reporting agencies is not only a great way to identify errors on your credit report, it can also help you spot identity theft early. The good news is that according to the FTC, "Both the credit bureau and the business that supplied the information to a credit bureau have to correct information that's wrong or incomplete on your report. And they have to do it for free." For more information on how to dispute errors on your credit report, click
here.
Conclusion
Though it requires a bit of patience and tenacity, building your credit score is an excellent way to set yourself up for future financial success. Though it's difficult to imagine, establishing good credit early is a proven way to save vast sums of money over the course of a lifetime.
