Best Tips for Building Credit
Building credit can seem like a challenge, especially if you’re just starting out and don’t have much credit history or if your history is less than ideal. If your credit is lower than you’d like, don’t get discouraged. There are several things you can do to build, rebuild, or improve your credit. We’re here to help with these tips to help you build your credit.
Take Out a Loan or Credit Card
If you don’t already have any loans or credit cards in your name, that’s the best place to start. Using credit is the best way to build your credit. We offer a variety of credit card and loan options to fit your needs, including our Credit Builder Loan. However, if your credit score may prevent you from being approved in the first place, following these other tips listed below will help you get your credit where it needs to be!
Use a Secured Credit Card
A secured card functions the same way as a standard, or unsecured, credit card. The only difference is that a secured credit card is secured, or guaranteed, by an upfront cash deposit. For example, you deposit $500 to open the account, and your limit on the card will also be $500. You use the card the same you would a normal credit card, and making your payments on time and keeping your balance low will help you build your credit.
Become an Authorized User
If you have a trusted relative or friend with good credit who has a high credit limit, you can ask them to be added as an authorized user on their credit card. You will receive your own card that is connected to their account, and the primary cardholder will be able to set limits on how much you can charge to their account. This adds their credit account to your credit report, also known as “credit piggybacking.” Becoming or adding an authorized user can be beneficial for both parties. As an authorized user, you benefit from the primary user’s existing good credit while learning how to responsibly manage credit. The primary user also benefits by being able to earn rewards on purchases made by the authorized user. The primary user doesn’t even have to let you use the account for your credit to improve. Simply being added as an authorized user to an account with existing great credit can significantly improve your credit.
Ask for a Higher Credit Limit
When your credit card balance remains the same but your credit limit increases, it instantly reduces your overall credit utilization, which in turn improves your credit score. If your income has increased or you have years of positive payment history, you have a good shot at being approved for a higher credit limit. Sometimes with regular purchases and on-time payments, your lender may increase your credit limit without you having to ask for it to be done. But you can still contact your lender yourself to ask if it’s possible to get a higher credit limit.
Get Credit for On-Time Rent and Utility Payments
If you always pay your rent and your utilities on time, you’ve shown that you have good money habits. To have your rent payment history added to your credit file, you can enroll in a rent-reporting service. Some landlords or property managers will pay for select services, there are services that you can pay for out of your own pocket, and there are even a few free options to choose from.
Make Small Changes
It’s important to keep your overall credit utilization low. Ideally, you shouldn’t use more than about 30% of your available credit. So if your credit limit is $1,000 your balance shouldn’t exceed $300. The best way to keep your balance manageable and demonstrate responsible credit usage is by making small charges on your credit card and paying them back right away. By paying those charges off quickly, the money comes out of your checking account right away so you know you won’t spend it on anything else and you ensure you’re paying off your credit charges. You can pay your charges off right after making the purchase, at the end of every day, every week, every 2 weeks, or whatever works best depending your paycheck schedule and personal preference.
Make Payments on Time
No other strategy to improve your credit will be effective if you make your payments late. Late payments can stay on your credit report for 7 ½ years, so once the damage is done it takes a lot of work to get your credit back in good shape. Even if you can’t pay the bill in full, you still need to pay at least the minimum payment. A fully missed payment will tank your credit much worse than only paying the minimum. Much like when you were in school, missing an assignment entirely will drop your grade much worse than turning in a partially completed assignment or turning it in a day late. Your record of paying your credit bills on time is the biggest factor in calculating your credit score and shows that you can use credit responsibly, so this is the best way you can work to improve your credit. You can create reminders for your upcoming payments, or better yet, set up automatic payments to ensure you never miss a payment.
Dispute Credit Report Errors
Request a copy of your full credit report and carefully review it for any errors. Your credit report shows your credit activity, your credit history, and the status of all your credit accounts. Any mistakes or identity theft attempts that went unnoticed can wreak havoc on your credit and ruin all the hard work you’ve poured into improving your credit. It’s important to check your credit report every year and dispute any errors on your report. You are entitled to one free credit report every year from Annual Credit Report. If you notice any errors when reviewing your report, contact the credit bureaus to have them removed or corrected.
- Eligible members can check their FICO® Score for free in Digital Banking
- Set up automatic transfers to ensure your loan payments are always made on time
- Request your free copy of your credit report at AnnualCreditReport.com
At Robins Financial Credit Union, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.