Credit 101: How to Build & Improve Your Credit

If your credit score is lower than you’d like it to be, there may be a quick way to increase it.

You can improve your credit score by taking a few basic steps, such as opening accounts that report to credit bureaus, keeping modest balances, and paying your payments on time.

Build Your Credit File

Opening new accounts that will be reported to the main credit bureaus — most major lenders and card issuers report to all three — Is a crucial initial step in building your credit file.

Pay on Time

A long history of on-time payments will help you attain good credit scores. Paying late will ruin your credit. Late payments stay on credit reports for up to 7 1/2 years.

Pay Strategically

Your credit usage is the percentage of your credit limits you use at any time. A decent rule of thumb is to use no more than 30% of your credit limit on any card, and the lower, the better. The top scorers use less than 7% of the time.

Catch Up on Past-Due Accounts

If you’re behind on your bills, bringing them current could help. While a late payment can remain on your credit report for up to seven years, having all your accounts current can be good for your scores.

Ask For Higher Credit Limits

When your credit limit increases but your balance remains constant, your overall credit utilization decreases, which might help you improve your credit. If your salary has increased or you have more years of good credit, you can acquire a higher limit.

Limit How Often You Apply for New Accounts

While you may need to open accounts to grow your credit, you should generally restrict the number of credit applications you submit. Each application may result in a hard inquiry, which may lower your credit score slightly, but inquiries can accumulate and compound your credit ratings. Opening a new account reduces the average age of your accounts, which may lower your scores.

Credit is a powerful tool that can assist you in reaching your financial objectives. Understanding how to build credit and make your credit history work is a solid foundation for a stable and secure financial future.