How to build credit


Lenders use your credit score to determine whether or not to grant you a credit card or loan and what terms you will receive. The lower your credit score is, the less favorable terms you will receive. In order to get approved with the more favorable terms, below are some helpful tips on how to build credit.

Your credit score is based on the combination of the positive and potentially negative factors on your credit report. To see everything that is currently affecting your score, you will need to obtain a copy of your credit report from all three credit agencies.

One major factor to improve or build your credit is to have at least 2 or more open major credit cards, such as VISA, MasterCard, American Express or Discover, on your credit report. This tells lenders that you are a responsible borrower and they may be more likely to see you as a good credit risk and approve you for credit. If your unable to get approved for a unsecured credit card, then apply for a secured credit card. They are a great way to rebuild your credit. Most secured credit card companies require a deposit equal to the credit line your are seeking. Make sure they report your payment monthly to the major credit bureaus. Making your payments on time monthly will increase your credit rating. You will also get you deposit returned to you after one year, turning your secured credit card into a unsecured credit card.

Next, if one or more of your credit cards has a balance that is close to the credit limit, it may be lowering your credit score. When your balance is high, this can indicate to lenders that you are more likely to overextend yourself. Try to increase your available credit to 50% of your credit limit.

Finally, if you have any overdue accounts or judgments on your credit report, try to pay off all or any accounts that are currently in collections or make payment arrangements with the creditor to pay off the balance monthly. This will also help to build your credit score.
Having low credit limits on your credit card accounts can lower your credit score. Having a high amount of credit is a positive factor because it tells lenders that other creditors have trusted you by lending you money in the past. However, If your major credit card limits are low, lenders assume you don’t have enough experience with higher credit limits. If you pay all your bills on time these creditors may eventually raise your credit limits, which will help boost your credit score.

If you find your credit scores are in need of improvement, it may not be a bad idea to pay the small monthly fee for a credit monitoring service. This can help you keep a track on where your credit scores are headed every month. It can also be a good indicator on when to apply for a loan so you can obtain the best interest rates.