Spring into Financial Health With These Tips for Building Credit

Table of Contents

1.Why Prioritize Building Credit?

2. Where to Start When Assessing Your Credit

a. Understanding Scoring Models

3. Key Strategies for Establishing a Strong Credit History

a. Mindful Credit Card Usage
b. Diversifying Your Credit Portfolio

4. Best Practices for Credit Score Monitoring

When it comes to financial wellness, your credit is an aspect that can't be overlooked. Your credit score influences your financial opportunities, so it's important to be mindful of where you stand. It can be confusing to understand how it's calculated and why the number goes up or down – but the good news is that there are proven strategies for giving your score a boost. To help you polish up your finances this spring, we're sharing ideas for building up your credit.

Why Prioritize Building Credit?

Why does credit matter so much in the first place? Simply put, it's a way to understand how responsible of a borrower you are, which ultimately impacts what you're offered. This impacts your applications for mortgages, car loans, and so much more. A good score means you have better approval odds and can often get a lower interest rate and more favorable terms, saving you significant amounts of money over time.

The importance of your credit score doesn't stop with lending opportunities. For example, landlords may check your score to see if you're a trustworthy tenant. Utility companies might ask for a deposit based on your score as well. That said, building credit and establishing a healthy history can help you out in the long run.

Where to Start When Assessing Your Credit

To begin crafting your plan, you want to gain an understanding of your current situation. Start with a free copy of your credit report from the three main credit bureaus: Experian, Equifax, and TransUnion. Check each report for mistakes, like late payments, accounts that don't belong to you, or incorrect balances.

Remember that credit reports do not show your credit score, but they provide the information that informs your score. You can do a deep dive into the factors that are influencing your financial health – like payment history, amounts owed, length of credit history, credit mix, and new credit accounts. Then, you'll understand what's impacting your score.

Understanding Scoring Models

Your score is the three-digit number that shows lenders how creditworthy you are. There are multiple scoring systems out there, including FICO, VantageScore, and others. Keep in mind, not all scoring models are the same, and your score might vary based on the one you're looking at. There are multiple FICO scores and scoring models, but FICO is the most commonly used by lenders. By asking for your FICO score from each bureau, you will have a clear view of your creditworthiness. 

Key Strategies for Establishing a Strong Credit History

It's essential to note that building credit takes time and hard work. You must be committed to showing lenders that you can handle borrowed money well and pay it back on time. We’ll share some guiding points to keep in mind as you're establishing a strong history.

Mindful Credit Card Usage

How you manage your credit cards plays a key role in your credit journey. While they're a useful tool in helping you establish a history, it's critical to use them wisely.

Here are some ways you can make sure your credit card accounts are working in your favor:

• Make on-time payments: Your payment history is a very important scoring factor for your credit score. Even a single payment that is late can hurt your score. Consider setting up automatic payments, especially if you have multiple credit card balances to keep up with.
• Pay more than the minimum: Making minimum payments on time is important, but paying more helps reduce your credit card debt faster. It also brings your interest charges down.
• Request a credit limit increase: If you handle your card well, ask your card issuer for a credit limit increase. This can help you achieve a low credit utilization rate, which shows how much credit you are using compared to the total amount you have available.

As you're building your credit, it can also be a good idea to consider a secured credit card. They require a one-time security deposit but typically don't require any credit history while helping you build yours.

Diversifying Your Credit Portfolio

When you're building credit, you'll also want to think beyond credit cards. Having a variety of credit accounts, including lines of credit, can help boost your credit score. Lenders like to see that you manage different types of credit responsibly. This includes installment loans, like an auto loan, personal loan, or mortgage loan. You might also consider becoming an authorized user on a family member's account. If they manage their credit well, this can reflect well on your report, too.

At the same time, be careful not to open too many credit accounts within a short period of time. This can lower the average age of your accounts and cause hard inquiries on your credit report, which both hurt your score. Try to have a good mix that accurately shows your financial needs and your ability to handle debt well.

Best Practices for Credit Score Monitoring

Credit monitoring should be part of your financial routine. This is because finding mistakes quickly and fixing possible problems early keeps your profile in its best shape. Aside from staying mindful of your own habits, don't ignore the importance of checking your credit reports for mistakes. These errors can happen as a result of identity theft or reporting errors and can negatively impact your score. Set alerts and reminders to check your credit report frequently to make sure everything is accurate and up to date.

Start Improving Your Finances Today

As you're working toward building credit and achieving an improved score, it's important to remember you're ultimately providing yourself with more choices and a secure future. Whether you want that dream home, a new car, or just want to be more stable financially, a good credit score is a must. Looking to build your credit? Consider our Secured credit card for a low-risk way to establish a strong credit history. With this line of credit, you unlock a low-risk method for establishing a healthy history.