Best Ways to Build credit

Create a credit mix by taking different kinds of debts. You might be having some remaining student loan payments, own a credit card, and could be thinking of buying a car.

If you want to buy a car, even if you have the money to pay for the car, get the car with auto-loan and pay installments regularly. Sign up for a one-year or 3-year payment plan. Pay the debt in time and maintain a good history for building a high score.

If you are planning to take a loan for your business start-up next year, it is a good idea to create a credit mix. Around 10% of your credit score depends on the credit mix which is a combination of debts you have taken.

Having a home loan, auto loan, and credit cards creates a credit mix that shows; the person has a history of taking loans and paying them off in-time. More debt means more chances of getting your next big loan approved with a high credit score.

Your credit report is like the report card you received at school. It shows how well you've done in terms of borrowing and paying back. Each account (open or closed) you have had is included, along with any non-payment information.

Periodically review your credit report for any inaccuracies, especially those related to your payment history. If you don't recognize an account on your credit report, contact that creditor right away because it could be a sign of identity theft.

If you open a credit account with some bank, don’t try to close it if you are not using it. As this will reduce down the average age of all your credit accounts, which will affect the credit score. If you are taking any branded credit card for just one or two purchases, try to avoid it. 

If you are not using a card, don’t close it. Instead, put your subscriptions like Netflix or any utility bills on your credit card. So that the card is used regularly and it will help you build your credit history.

To avoid any inaccuracies, you should collect your credit report from the biggest credit reporting bureaus: Equifax, TransUnion, and Experian. Incorrect or incomplete information on your report can lower down your score.

Check if the accounts mentioned in your reports are correct. If you find any fault in the report, dispute the correct information and get it right anyway. Monitoring your credit report would help you spot inaccuracies. However, checking on a regular basis might damage your credit score yet again. 

This empirical evidence is used to gauge your reliability for future payments. Late payments damage your credibility.

This doesn’t just apply to your loan and credit card payments; you also need to be consistent with your utility bill payments. If you keep forgetting about these bills, set-up an auto-pay system or set a monthly reminder for the payment of your bills.

If you’ve already missed the payment date, remedy the situation at the earliest. Even though a missed payment will show up on your credit report for up to 7 years, older payments carry a lesser weight than recent ones so its impact will decline as time passes. 

Whenever lenders review your score, they examine how timely you are in paying utility bills. You can expect a slight increase in your credit score by paying on the agreed time every month. Setting the house owner for less or paying less than what you are supposed to pay affects your credit score negatively.

Besides utility bills, you have to pay credit card bills and loans on time. For example, if you had taken a student loan, you must repay the installment every month in a timely manner. One trick to pay on time is to calendar reminders, if not automatic payment methods.

'Age of credit accounts' has a 15% weightage in deciding your credit score. You could be planning to take a loan in near future and therefore want to improve your credit score. A good history of paid debt shows that you can be trusted. Old credit cards that are active in the present show up in your credit history.

If you close the old cards, it would reduce the credit card limit and increase the credit utilization which will ultimately knock off points from the credit score.

The utilization ratio is an important figure for the lenders. The lenders calculate it by adding all the credit balance and dividing it by your total credit limit. To find an average of your utilization ratio, look at all the credit score statements from the previous year.

Keep your utilization ratio as low as 30%. People with good credit scores have a low utilization ratio. This ensures the lenders that you are not a person who maxes out the credit limit. If you can handle your credit limit, you would definitely see an increase in the credit score.

One of the fastest ways to build good credit is by paying your bills on time. Creditors like to see a solid record of liability. If you miss a payment, even just one payment, it will stay on your credit report for seven years.

Make paying bills on time your priority. Set reminders on the calendar to make payments and allow your payment time to reach your lender before the due date; it could take up to seven days. Or, if you want to save a stamp, use our online bill pay service to make and schedule payments. You can even schedule recurring payments, allowing you to "set it and forget it" so you don't miss a due date.

You can use the credit card for buying anything, but always remember to get what you can pay back. If you spend $100 on monthly groceries, don’t buy $300 worth of groceries on your credit card. The credit card might upset your budget because it gives you a false sense of having money when you don’t.

Stay below 30% of your credit limit and never withdraw a lot of money as it negatively affects your credit score.

Credit score falls when you miss payments or make late payments. Your credit score is majorly dependent on the payment history. To improve credit score, pay your credit card payments and other debt payments on time and don’t skip them. To avoid getting late, automate the process and let the credit card company deduct the outstanding balance from your bank account every month. 

Credit is important to build assets and buy things when you don’t have the cash to pay for it upfront. The best way to start building credit is with a credit card. There are many types of credit cards that charge no interest on payments within 30 days, contain no annual fee charges or any other hidden charges. Get yourself a credit card and start paying for small expenses with a credit card. Payback the debt in time and build a good credit score.

Most credit card companies give you a start with 300 points of credit score. To reach 800 and above, you need to take a good start. Take healthy amounts of debt from time to time. Remember to pay in time or automate the process by letting the lender deduct money from your bank account directly.

If you have a credit card limit of $10,000 and you withdraw $9,500 you might lose your credit score. Credit utilization refers to the portion of the credit limit that you are using and its percentage affects your credit score.

Aim for 30% utilization of the credit limit if you want to maintain a high credit score. If you want to withdraw higher amounts, apply for a credit card with a higher credit limit.

Your credit score depends, among other things, on your credit utilization ratio. This important metric is the quantum of credit you generally utilize over a period of time as against the total credit available to you.

If you have 2 credit cards with a $5000 limit each, and you utilize $400 on one card and $600 on the other, your credit utilization ratio comes to $1000/$5000 – 20%.

Ideally, lenders like to see a maximum of 30% credit utilization since people who manage credit well will almost never max out their credit cards. You can be proactive in positively influencing your credit score by maintaining low credit balances and redeeming outstanding debts.

A credit card can be your worst enemy if you go on borrowing money that you cannot payback. There have been instances when people trapped themselves in the rolling snowball of credit card debt which was impossible to stop.

When you exceed the 30-day limit, the credit card company starts charging compound interest. If you fail to pay the amount you borrowed for a year, you will have a huge debt to pay because of compounding interest charges applied in every period during the year.