7 tips to build and maintain good credit

Your credit score rates how creditworthy you are, and the higher this number is, the easier it will be for you to access financial products with better terms.

Fortunately, there are plenty of ways to build and maintain your credit score, including getting a credit card early, paying your bills on time and consolidating your debt into one credit card.

This article covers must-know tips to build and maintain your credit score this year.

Why is it important to have a good credit score?

A good credit score is the key to accessing better-quality financial products, such as credit cards with lower interest rates, insurance rates and faster loan approvals.

This three-digit code reflects how financially responsible you are. Hence, whenever you’re about to make decisions involving your finances, your credit rating is almost always the first factor considered by the institutions involved.

How to build and maintain good credit

1. Get a credit card early

Since your financial records determine credit scores, the sooner you record positive financial habits, the easier it will be to build your credit score. One of the fastest ways to officially document your financial decisions is to get a credit card early.

Once you have your credit card, develop healthy spending and paying patterns to build your credit score gradually.

Remember, a credit card is a double-edged sword for your credit history. Although it can build your credit score when used responsibly, it can also be a gateway to overspending or accumulating debt, negatively impacting your credit.

2. Pay your balance in full and on time each month

Using your credit card is helpful in officially recording your financial history. However, remember to repay your credit card balances in full before their billing cycle ends every month to maximize your credit score.

By doing so, not only will you maintain low credit utilization, which is known to impact credit scores positively, but you’ll also avoid paying high interest rates.

3. Pay bills on time

Your bill payment history is one of the most significant scoring factors contributing to your credit score. Paying your bills, such as your utilities and debts, on time serves as tangible proof that you can responsibly take out and repay loans.

I recommend automating your bill payments or setting reminders when it’s time to pay your bills to avoid late bill payments.

4. Only apply for credit you need

Applying for credit accounts usually leads to hard inquiries that can hurt your credit score. The effect of each credit application usually isn’t too noticeable, but if you apply for credit too frequently, the impact can accumulate over time.

Lenders may also reject your applications if they think you are desperate for credit due to having multiple hard credit checks on your profile within a short timeframe.

5. Review your credit report

Review your credit report regularly to ensure there are no red flags. You can request a copy of your credit reports from the three consumer reporting agencies (CRAs) for free. Watch out for incorrect information, including accounts you did not open.

Generally, on-time payments, having a low credit card balance, and maintaining diverse credit lines combined are the optimal conditions that improve your credit score.

6. Use 30% or less of your credit

Your credit utilization ratio, which represents the percentage of your overall credit that you use, is another major factor that affects your credit score. The lower this ratio is, the better it will be for your credit score. Using 30% or less of your available credit is best.

7. Consolidate your debt on one credit card

According to a study conducted by TransUnion, one of the three CRAs in the country, more than 68% of consumers who consolidate their debts into one credit card improved their credit scores by at least 20 points.

Therefore, if you have multiple debts spread across various credit cards, consider consolidating them into a low-interest credit card. Doing so can simplify monitoring your repayment schedules and significantly enhance your likelihood of boosting your credit score.

Is it possible to boost your credit score overnight?

Yes, it’s possible to see a quick boost in your credit score, but only on rare occasions. For example, if you've been a victim of fraudulent transactions and the credit reporting agencies promptly remove those unauthorized charges, your credit may improve immediately.

However, other than on occasions like this, you are unlikely to significantly boost your credit scores instantly. Credit scores serve as a reflection of years of financial history. Having a high score involves consistently good financial habits, including timely payments, low credit utilization and responsible debt management.

 

This article was written by Enoch Omololu from Forbes and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.