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4 Ways to Help Build Your Credit

Published May 21, 2014

build your credit score todayAre you dealing with less-than-perfect credit? Perhaps you’ve been trying to apply for a loan but the offers you’ve received are way too high? Though your credit score may sound like just a random number, it’s actually much more than that. A good credit score helps you secure better loan options, which in turn will help you find the best rates.

The first step in improving your credit is knowing exactly how your credit score works. In a poll conducted by the Opinion Research Corp., only 27 percent of consumers understood what a credit score actually measures. In a nutshell, a credit score measures loan risk. The higher your credit score, the more likely you are to repay a loan on time and therefore the less risky you are in the eyes of potential lenders.

Though some credit scores are calculated differently, most include a combination of your payment history, types of credit, amount of debt owed, and your length of credit usage. These factors, among others, help calculate the likelihood of you repaying a loan on time — thereby showing potential lenders what kind of loan options you should be offered. Sounds a bit impersonal, doesn’t it?

Credit scores range from 300 (the lowest) to a perfect 850. Most lenders consider scores of 700 or higher to be considered good credit and will offer people with this type of score better loan options.

If your credit score is lower than you’d like to admit, don’t worry; it’s not permanent. Improving your credit is possible, it just takes is a little due diligence and time. For those who are dealing with poor credit, there are everyday steps you can take to increase your score.

1) Pay Your Bills on Time

Paying your bills on time is the easiest way to start improving your credit score. This is because over one third of your credit score is based on your ability to make timely debt payments. If you have past due bills, then paying them off should be your first priority. Making sure your payments are up-to-date and avoiding common credit mistakes will help you wipe the slate clean. It also gives you more room to build (or rebuild) your credit.

2) Open A New Credit Account (And Be Smart With It)

Another major factor that influences your credit score is the amount of credit you have and the percentage of available credit that you are using. Opening a new credit account allows you to increase the amount of credit available to you while also lowering the amount of credit that you are using. Even if you only qualify for a secured credit card, that is a good first step on the journey to better credit.

It’s important to note that while having multiple credit cards can help your credit, having various credit cards with overdue balances can drastically hurt it. If you decide to open a new credit account, be sure to limit your purchases to things you know you can immediately pay off. Having a robust credit history with consistent payments looks good in the eyes of lenders, so it’s extremely important that you practice smart credit habits with any new accounts.

3) Pay Down Your Debt By Targeting Your Highest Debts

Since your credit report also calculates your debt-to-income ratio, people with a higher debt-to-income may find it more difficult to get a loan or get a loan at a reasonable interest rate. Though selling your car, renting a room in your home or finding a second job to increase your income are all ways that you can significantly reduce your debt-to-income ratio quickly, there are other, less painful ways to earn a few extra dollars.

4) Create a Budget to Control Spending

In addition to paying off your debt and increasing your available credit, you should also create a budget that will allow you to stay within your financial means. Having a budget lets you see exactly where your money is coming from, where it is going, and whether you need to make adjustments to your spending habits to better manage your finances.

As your credit score improves, you will find it easier to get loans, secure lower rates on insurance policies and find employment.

How have you been able to improve your credit? We’d love to hear from you! Weigh in and leave a comment below.

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