How To Build Credit
Credit plays a major role in many big life purchases from home loans to auto financing, so keeping a healthy credit score makes life easier. But what happens when you go to make one of these purchases and your credit health isn’t quite as strong as you need it to be? Don’t sweat the past mistakes and let’s get back on track. Follow these quick tips on how to build your credit health.
Pay Down Debt Faster
When considering how to manage your credit cards, it’s not just about looking at how much you owe. The important figure is how much you owe compared to how much credit you currently have, also known as your credit utilization rate. If you have a credit limit of $5,000 and you carry a balance of $3,000, your credit utilization rate is 60%. Generally, the lower the utilization rate, the better. Credit card companies report this rate each month, affecting your credit. To decrease your utilization rate, one method is to make payments at least twice a month on credit cards to keep your balance lower. In addition, if you make a large purchase on your credit card and have the necessary cash, pay it off right away.
Increase Your Credit Limit
Requesting a credit limit increase from your card issuer is one way to help your credit utilization rate stay in check. While this helps decrease the credit utilization rate and provide overall benefits, be careful to stay in control of your finances with the raised limit. Also, know that the card issuer may perform a credit check, which may appear as a hard inquiry on a credit report. This could drop your score a few points in the short term.Open a New Credit Card
This is a different way of increasing your overall credit limit. Instead of a high credit utilization rate on one or two cards, another approach may be to open a new credit card and keep the rates lower on all of them. Generally, credit scores factor in all of your open lines of credit and balances together, regardless of whether these amounts are on one card or multiple cards, so this could make your overall credit higher. However, be careful not to open up too many accounts and appear like you’re on a spending spree. If you take this approach, you may want to only apply to only one or two new cards that could help balance your monthly expenses, like a gas rewards card.
Keep an Eye on Your Credit Report
You’re entitled to a free credit report every 12 months. Always take advantage of this because reviewing your report can help you spot possible inaccuracies and even signs of identity theft. Here are some things to check for:
The more you review your credit report, the better you’ll understand how it works and increase your overall financial savvy.
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