How to Build Your Credit One Day at a Time

How to Build Your Credit One Day at a Time
GUIDE
Mike Randall
By: Mike Randall
Posted: February 11, 2014
BadCredit.org's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

Having a good credit score isn’t just something to brag about. It’s essential to many parts of our daily lives.

These days our credit score is scrutinized for everything from insurance rates to job applications. If you have a low credit score, it may be hurting you in ways you aren’t even aware of.

Luckily, there are ways you can improve your score and start taking advantage of the benefits.

One of the most important first steps toward building your credit score is education. By learning all you can about how credit scores are calculated, you’ll know what to do – and what not to do – when it comes to managing your debt.

That’s why we’ve put together this quick guide on how to build your credit score one day at a time. By following these tips, you’ll see a gradual but steady increase in your score.

The first thing everyone should do to begin building their credit score is to request a copy of their credit report and examine it thoroughly.

Go through every item line by line and verify that each of them is accurate and belongs to you. According to the Federal Trade Commission, up to 25 percent of all credit reports contain errors that can cause a lower credit score.

You have the right to dispute anything on your report that is not accurate.

1. Look at the state of your credit.

Once you’ve verified that your credit report has no errors, it’s time to look at the state of your credit. By this, I mean what kind of credit do you have? And how much?

Some people looking to build their credit don’t have the most important tool in the box – a credit card.

Your credit score is mostly based upon your ability to use credit responsibly, and the way the credit bureaus determine this is through the proper use and repayment of revolving credit – in other words, a credit card.

2. Make sure you have a credit card.

If you don’t have a credit card, it can be difficult to get the first one. Fortunately, there are ways you can work toward that first card.

Try applying for a store or retail credit card. They are much easier to get and they act as a revolving credit line on your credit report.

Another method is to take out a personal loan from a bank or credit union and repay it. Anything that will show you are responsible with credit and can repay the loans will help establish a good payment history.

After that, getting a credit card will be a piece of cake.

” Good credit is no accident.

It’s a continuous process

3. Make sure you don’t have too many cards.

Some folks have the opposite problem – namely too many credit cards or too much debt.

Your credit score is determined by a combination of five factors: your payment history, the total amount of debt you owe, how long you’ve had credit, the types of credit you have and recent credit activity.

Of these, the first two count for a combined 65 percent of your score, so reducing your credit card balances and improving your payment history are the two most important things you can do to build your credit score.

4. Work to keep building your credit score.

Building your credit score is a continuous process. If you are serious about building and maintaining a great credit score, you need to follow a few simple rules.

  • Make your payments on time – every time.
  • Maintain a ratio of debt to available credit of no more than 30 percent. To help with this ratio, don’t cancel cards with available credit and no balance – simply put them away but keep them active.
  • If you have small balances on a lot of cards, pay them off.
  • Check your credit report regularly and dispute any items that are not accurate.
  • Don’t simply cancel old credit cards – older accounts are important to your score.
  • Don’t apply for too much new credit – this can be a red flag.
  • Installment loans such as a car loan or other large purchases show a diversity of credit use and usually raise your score just by paying on them.

Having and building good credit is just a matter of knowing how the system works. By using the rules to your advantage, you’ll see your score rise gradually but steadily.

Remember, good credit is no accident – it’s a continuous process. Now you know the tips to make that process work for you.

Photo source: madison.k12.wi.us