HOW TO BUILD A GOOD CREDIT SCORE

Staff Contributor

Having a good credit score plays an important role in how easy it will be for you to get loans and how low of an interest rate you will get on those loans. Building up your credit score takes time and to do so, you must follow these steps.

Pay your bills on time

Your payment history is the No. 1 factor in your credit score, so if you constantly pay late, it will be hard to keep a good score. Make sure you pay at least the minimum amount due on any credit card or loan on time every month. If you fall behind and have amounts in arrears, bring the accounts current as soon as possible.

Limit your debt load

Having some debt can actually be good for your credit score, because part of your credit score is based on how much you use credit. However, you don't want to have too much. Credit bureaus look at your debt-to-available-credit ratio and generally want to see that stay below 30 percent. So if you have a $5,000 credit limit on a card, you shouldn't carry more than a $1,500 balance. The best way to boost your score is to use your credit cards often but pay the bill in full every month. This not only helps your score, but it saves you money because you don't pay any finance costs.

Don't get more credit than you need

While you need to use credit to boost your credit score, too much can hurt you. Every time you apply for a new credit card, the credit card company pulls your credit report, which is called a hard inquiry. These inquiries temporarily drop your score. Having too much available credit can also hurt you in the eyes of lenders.

Don't close accounts

If you pay off a credit card and don't plan to use it anymore, it may seem logical to close it. But doing so can eliminate valuable credit history and also raise your debt ratio, which can both hurt your score.

 

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