Assuming that you understand the concept and importance of having a good credit score, the next step you would want to take is building or improving your credit score.
Before jumping into our recommendations, it’s important to be aware of the following factors affecting your credit score: (1) payment history, (2) percentage of your credit limit usually spent, (3) length of credit history, (4) new credit, and (5) other credit types you have as a borrower.
Taking into consideration these factors, here are some of the best ways to build good credit:
- Apply for a credit card as soon as possible
This may seem obvious, but the best way to start building good credit is to actually apply for a credit card. The purchases you make using your credit card as well as your ability to pay them off on time demonstrate how responsible you are when it comes to handling your finances. This improves credit score and increases your chances of being approved for future credit.
- Avoid late payments
Being consistent with your monthly payments is easier said than done. There are times when it’s difficult to pay off debt and dues due to a number of unforeseen circumstances. However, a simple trick to lessen the burden of paying a huge amount of debt is to pay early or twice per month. Frequent payments on top of your minimum monthly dues also suggests that you’re a responsible borrower.
- Stay within your credit limit
Maxing out your credit card is never a good sign for lenders. Frequently going over your existing credit limit negatively impacts your overall credit score. If possible, try to use only 30% of your overall limit to show lenders you’re capable of managing an even potentially larger amount. You’re more likely to be offered a better interest rate, too!
- Avoid applying for multiple credit cards or loans all at once
You might have to think twice before applying for more than one credit card or loan at the same time. No, it doesn’t increase your chances of getting approved. In fact, multiple applications and refusals can damage your credit score, as lenders may find this as an unusual activity. Before applying for new credit, make sure you’ve done your research so that you can get the best possible rates.
- Apply for different types of credit
Your ability to successfully pay off a variety of credit types leaves a good impression to lenders. This is considered as one of the fastest ways to build your credit score.
Building good credit can be intimidating, if not difficult, for most people. But once you’ve established good financial habits and applied these practices, you will find long-term improvements in your credit score.
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