Bad credit follows you around for a long time. That's why it's so important to learn how to build good credit right from the beginning. But if you're already having trouble maintaining a good credit score, all is not lost. Whether you're applying for your first credit card or trying to fix mistakes you made in the past, good credit isn't out of reach.
It's tempting to open as many credit card accounts as you can, but there are some downsides to this. First, the more credit you have, the more you'll be tempted to use it. Second, each new credit card application adds an inquiry to your credit report. The fewer inquiries on your credit report, the better. They make up 10% of your overall credit score.
It's very important to pay credit card balances in full every month. This shows creditors that you're responsible with your credit which helps raise your score over time. Plus, it saves you money because most credit cards don't charge interest if you pay your statement in full every month. If you're unable to afford to pay the balance in full, it's a clear sign that you're spending more than you can afford.
If you're unable to pay your credit card balance in full, keep a close eye on the amount you carry over from month to month. Balances that are higher than 30 percent of your card limit negatively affect your score. In fact, some creditors and lenders like to see credit usage at 10 percent or less. Make sure you always make the minimum payment but try to pay as much as you can every month.
Pay all of your bills on time. Your mortgage, car loans, student loans, and credit card bills show up on your credit report each month, but any unpaid bill can negatively affect your credit score, especially if you're more than 30 days behind. If you're late on your cell phone, cable, or utility payments, you run the risk of being reported to a collection agency which significantly lowers your credit score. In fact, having debt collection on your credit report can be extremely difficult to overcome.
It can be hard establishing credit initially because you might now get approved for a major credit card if you don't have a credit history for them to consider. If this is the case, try applying for a retail store credit card instead. Retail store cards usually have easier requirements and lower credit limits, so you're more likely to be approved. As a bonus, most stores give cardholders perks like coupons or special sales which helps you save even more money.
If you haven't been responsible with your credit and got in over your head, you may want to consider a consolidation loan. There are a lot of peer-to-peer lending companies that provide credit card consolidation loans. These are typically much easier to get approved for than a traditional bank loan. Once your loan is approved, pay off your credit card balances right away. This can actually have a quick and significant impact on your credit score.
If you have bad credit or don't have enough of a history to get approved, consider finding a co-signer. By jointly applying for a credit card or loan with someone who has good credit, your approval odds are pretty good. Once you establish a payment history, your credit will improve so that you can get your own account. A co-signer shares in the liability for the account so it's important to take this very seriously. Any late payments affect both of your credit scores so it's very important to make payments on time.
Once you've paid off all your credit cards, you might think it's best to close the accounts so you're not tempted to use them again. Believe it or not, closing all of your accounts can negatively impact your score. Remember, the point of a credit report and score is to prove that you're responsible with managing debt. Having credit card accounts with balances of less than 10% of their limit can be better for your score than closing the same account. Use them and pay off the balance every month or leave them in your wallet and use cash.
If you're starting from scratch, it takes about six months to get a credit score or report. Remember the factors that make up your credit score: 35% is payment history, 30% is the amount you owe, 15% is credit history, 10% is credit used, and 10% is number or inquiries and new accounts. What does that mean? It takes time to build an excellent credit score. It's important to start smart and maintains good habits, so your score grows higher over time.
Keeping an eye on your credit score and credit report is easy. There are a lot of free apps and websites that give you an updated score every month for free. A lot of credit card companies also offer free score monitoring. You can also request a free credit report from the three credit bureaus every twelve months. In addition to seeing your progress, checking your credit score and report often is also important to make sure there aren't any errors. If you do find an error, contact the credit bureau. They're required to investigate valid claims within 30 days.
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