Love it or hate it, we all use credit at some point. It may be buying a new car, it may be starting a business, completing a home project, or even just buying groceries each wee, but we all use credit. What we can get is often limited by our credit scores. If you don't have the best score, there are things you can do to help improve it.
Credit scores look at several factors, but the main concept is to see how much or a risk to lenders you are as a borrower. Credit Card Insider analysts Nathan Grant and Brendan Harkness shared with 13 ON YOUR SIDE some of the important things to know about credit scores. Your past payment history, the amount of money you owe, how long you have had a credit history, if you have new credit accounts, the kinds of credit you have, and how much of your available credit you use are all things that make up your credit scores.
So let's get started. You can easily start off on the right foot by getting a single credit card and paying it off completely every month. This can be a store card at your favorite place to shop, or one from a bank. Grant says "If you are new to credit, sometimes retail store cards, while they have higher interest rates, have lower barriers of entry so if you get, say you shop at Target all the time, and you get approved for that as your first credit card. If you are paying it down every month, your using it and then paying it right down that will immediately start building good credit scores by using it."
It is always a good thing to start building credit as early as you responsibly can in your life as the length of your credit history plays a role in your credit scores.
Now that you have a card, don't max it out. By only using part of the amount of money you could be, you are showing future lenders that you are financially responsible with the money and the credit you already have. Make sure to pay on time. Any time you make a lat payment, that is going to negatively impact your credit scores. Most companies have the option for you to make automatic payments. This will help make sure you are never late making a payment. If a bill goes to collections, your credit will take a major hit, and unfortunately, no matter what the reason was for the bill going to collections, that black mark will stay in your credit history for up to seven years."The most important factors that contribute to your credit are your payment history, and that’s, you know, making sure you pay your balances before the statement due dates each month, even if you can’t pay it in full, which is the ideal situation, if you are at least making the minimum payment and avoiding the late payments, that’s going to be helping the most," says Grant.
"Even though things last on your credit scores for years and your credit reports for years, there’s ways to immediately take those steps by being a responsible borrower. Paying on time, it’s just one of those things that gets better as you are paying it off."
Don't apply for too many cards at once. You can have more than one card, and in fact most people do, but applying for multiple cards as once doesn't look good to prospective lenders. "That’s going to do a lot of hard inquiries on your credit, and damage your credit score a little bit," says Grant.
Something else you can do, keep open your credit card accounts, even if you aren't using those cards anymore. This may not seem to make any sense, but hear my out. Your credit utilization ratio is part of what impacts your credit scores. By keeping open a card with a $5,000 limit, but not using it, your ratio is going to be much lower than if you closed the account. "When you pay it down, if you want to cut up the card, just not have the temptation of using it, having it open, especially if it has a history of you paying it down possibly, it’s going to benefit you so much to keep it open," says Grant. Something else you can do, request an increase in the credit available on the accounts you already have. Grant says, "If you request for an increase, and let’s say they add another $5,000 onto one of your cards, that doesn’t mean I’m going to go spend it willy nilly, but just having that extra credit available is going to decrease that credit utilization number and increase the overall credit you have."
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