5 Steps to Take When Building Your Credit Score

5 Steps to Take When Building Your Credit Score
  • Opening Intro -

    To live your best financial life, you must have good credit.

    However, if you're establishing credit for the first time, you may be unsure where to begin.

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Your credit score is calculated using information contained in your credit reports. Thus, establishing a good credit score typically begins with establishing a few accounts lenders report to the credit bureaus. The accounts will appear on your credit reports once reported; it is up to you to manage them responsibly.

Starting over with credit frequently needs good credit to qualify for financing. Finding a lender willing to take a risk on you can be difficult.

Fortunately, some banks and lenders specialize in working with credit novices. You can also employ additional strategies to help you get a head start on credit building.

1. Pay Bills on Time

The most straightforward approach to establishing and maintaining excellent credit is paying all your payments on time each month. Even better if you can spend more than the minimum sums owing.

If you cannot pay more than the minimum sums due on all of them, prioritize paying the highest interest rate first. Then, aim to reduce the account balance or accounts with the most significant balances. This ensures that you are carefully reducing your total debt each month.

2. Manage your Debts

Maintaining low balances will help you improve your credit score. Aim to keep your debt utilization as low as possible — that is, the percentage of available credit that you use.

You never want the balance to be more than 30 percent of the credit limit — that is, anyone card or in total. With the help of debt consolidation in Calgary Alberta, you can manage your debts quickly.

If you are carrying a balance on any of your credit cards, create a plan to get them paid off as soon as possible.

3. Utilize the Strategy of the Authorized User

The authorized user technique is another method for adding accounts to your credit report. It entails approaching a friend or family member and requesting that they share their excellent credit with you.

Your loved one contacts their credit card provider and adds you to an existing credit card as an authorized user. The card issuer will ship a credit card in your name to your loved one linked to the principal account. Charges made to the card will appear on the principal cardholder’s following credit card statement.

It is where the magic may occur. Numerous credit card issuers provide the three credit reporting agencies with authorized user accounts.

Thus, if the account appears on your credit report, you may find that you suddenly have years of positive payment history associated with your credit profile. When the technique is successful, your credit score may experience a significant increase as a consequence.

4. Limit How Frequently You Open New Accounts

While you may need to create accounts to construct your credit file, you should generally restrict the number of credit applications you make. Each application may result in a hard inquiry, which may slightly negatively impact your credit ratings.

Still, inquiries may accumulate and have a compounding effect on your credit scores. Opening a new account may also reduce the average age of existing accounts, which may hurt your credit ratings.

While inquiries and the average age of your accounts are small score elements, you should nonetheless use caution when submitting applications. One exception is when you’re browsing for interest rates on certain sorts of loans, such as a car loan or a mortgage.

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Credit scoring programs understand that rate shopping is not a dangerous practice and may disregard specific inquiries if they occur within a few weeks.

5. Have a Secure Credit Card

As with becoming an authorized user on someone else’s credit card, obtaining a secured credit card is another approach to circumvent the paradox of being unable to get credit without first obtaining credit.

When you apply for a secured credit card, you may expect to be approved for a credit limit equivalent to the amount of money you deposit in a safe account to pay your debts in the event you fail.

When you apply, the lender or creditor may still check your credit score to establish a reasonable interest rate and monthly payment to charge you. As you use your secured card and remain current on your payments, you will set a credit history and improve your credit score.

Image Credit: building your credit score by envato.com

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