Keep Score:
7 steps to build and maintain good credit
When it comes to financial goals, responsible consumers are always looking to the present and the future. How much money are you making and saving now? How do you invest and budget that money so we can reach our goals? But while you are looking forward to retirement or a new house or a new car, the banks and financial institutions that will help you get there are looking at the past — at your credit history.
Building good credit is the key to achieving most major financial goals. A good credit score may qualify you for better interest rates if you choose to go down the path of homeownership. The Consumer Financial Protection Bureau (CFPB) says it may earn you better terms on a new car, credit card, or student loan.
1. Check Your Credit
The first step is to see where you currently stand. Each of the three major credit bureaus offers a free annual credit report. Review yours and report and contest anything that appears out of sorts. Then keep checking your credit score and reports periodically as you build your credit.
So how do you build credit? In many ways, good credit is like good health — it’s something you accumulate gradually and maintain each day through small, wise decisions. Here are seven simple things you can do to start building good credit today.
2. Consider Applying for a Credit Card
You’ll have trouble establishing credit without accounts. Having one (or more) credit cards that you use responsibly may improve your credit score.
3. Explore Becoming an Authorized User
Someone with established credit can add other people to their credit card accounts as an authorized user. This essentially gives the user access to the cardholder’s line of credit and can be a great way to jump start or restore your credit. However, this comes with the understanding that the primary cardholder is responsible for making payments on time, so the authorized user should be someone trustworthy who won’t go overboard with spending.
4. Be on Time
Whether it’s a credit card, loan, rent, or cell phone bill, it’s important to make payments on time, or at least pay the minimum amount when it is an option. If you are able, set up automatic bill pay to make sure you never miss those all-important due dates.
5. Report Your Rent/Utilities
Most landlords and utility companies don’t actually report your payments to the credit bureaus. If you pay those monthly bills on time, it is possible to use a third-party service to self-report those payments to the bureaus and have them factored into your report — and get the credit you deserve. Third-party services oftentimes require fees as well as verification of payment from your landlord.
6. Don’t Use All Your Credit
Keep your credit usage within reason as using too much of your credit can ding your score. Experts recommend to use less than 30% of your available credit.
7. Consider Keeping Accounts Open
This might seem counterintuitive, especially with credit cards and accounts you don’t use regularly. But when you close an account, you decrease your available credit, and that can unintentionally hurt your credit score. So, if you do have a seldomly used or dormant account, it might be better to keep tabs on it through your regular credit reports.
For more on how to build and manage your credit
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