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Credit scores a can help or hinder the average consumer from getting loans, credit cards, cars, and even a home. A good credit score is above 670 in terms of the FICO score range. Whether you are a young adult with no credit or an older person who needs to repair an unsatisfactory score, implementing these 6 strategies will assist in building an adequate credit score:
1. Get a secured credit card
The first step to building a credit score is having something to build it on. Secured credit cards are the best option for people with a bad score or no score. These cards use the owner’s initial deposit amount as collateral in the case that they miss payments. The key to bettering a score with this method is to “pay down balances, and keep those balances low,” as Pamela Banks, senior policy counsel for Consumers Union advises to the readers of Bankrate.
2. Make payments on time
According to CNN Money, payment history makes up for approximately 35% of one’s credit score. The reason it makes up for such a large part of the process is that a clean payment history shows credit companies that you are responsible and financially stable enough to pay bills and loans on time.
3. Watch your credit score
A misconception that exists is that checking one’s credit score often will lower it. A good idea is to make sure you check your Experian, Equifax, and Transunion reports occasionally. Another misconception that people have is that checking their score will cost money. While some sites do require this, CreditKarma and AnnualCreditReport allow people to check them for free.
4. Get rid of old credit balances
It is best to get rid of debt as soon as possible. Old balances cost more as interest rises and increase your credit utilization ratio. This ratio should be 30% or less to keep a good score.
5. Avoid applying for many credit cards
When you apply for a new card, the companies will inquire about your credit history to bureaus. This act is called a “hard inquiry” and does harm your score, though in a minor way. However, this can add up. It is best to avoid applying for too many cards and only going for one after extensive research.
6. Become an authorized user on someone else’s card
Becoming an authorized user or getting a joint account with someone allows a person with little credit to build alongside a person with a good credit history. It is important to do this with a responsible person and to also be responsible when making payments to not affect the other person’s score.