What Can I Do to Build and Rebuild Credit
April 12, 2019
Credit makes the world go round. In today’s world, establishing, building, and maintaining good credit is essential for your financial health. When you have poor credit, it’s hard to get a loan, rent an apartment and, in some cases, find a job. Whether you have no credit, bad credit, or good credit, the best time to start working toward a higher credit score is now. Even if you have good credit, you should always work toward achieving or maintaining a high score. Here are some tips to build a higher score:
Examine Your Current Score
If you have a poor credit score and want to improve your rating, the first step is to examine and understand your credit report to determine where your problems lie and what areas need the most improvement. The good news is, everyone is allowed one free report from each of the three credit bureaus every year. Request your reports from Equifax, Experian and TransUnion. Use them to monitor credit activity and to create a plan for improving your score.
Secured Credit Cards
Sometimes with little to no credit, getting approved for a traditional credit card can be difficult. A secured credit card may be a viable option for you. This type of credit card is “secure” because it requires that you either link a savings account or put down a cash deposit as collateral for untimely or missed payments. The secured credit card follows the same principles of a regular credit card, and can be a great way to get your feet wet if you are new to the credit world and trying to build an excellent score from scratch.
Poor payment history can be devastating to your credit score. If you have a history of missing payments, your score will directly reflect that. If you are behind on payments, you won’t be able to improve your score until they are paid in full. Your priority when rebuilding credit should be to bring all accounts up to date. If you are unable to do so, contact your creditor, explain your situation, and ask to discuss a strategic plan for paying off the outstanding debt. Once you are caught up on missed payments, make sure you pay bills on time going forward. This doesn’t just include credit card bills; other bills such as utility and rent can also affect your credit score. Establishing a reliable payment record is important and proves to creditors you are timely and responsible.
Keep Track of Credit Utilization
Credit utilization is the ratio of your outstanding credit card balance to your credit card limit. The basic rule of thumb is that your credit balance shouldn’t exceed 30% of your credit limit. If possible, it’s highly recommended that you pay your credit card balance in full every month. If this isn’t possible for you, make sure you pay attention and work to keep your balance within a healthy range every month.
Watch Your Number of Accounts
The number of accounts you have and the length of time they have been open also impacts your score. You should keep your accounts open as long as possible, unless you are being charged maintenance fees on an unused account. The longer you have your credit accounts open in good standing, the better your score will be. So consider this if you do need to close an account – don’t close the one you have had open the longest. However, avoid opening too many new accounts in a short period of time. This may lower your average account age which can negatively impact your credit score.
Building an excellent credit score doesn’t happen overnight. It takes patience and time to establish a better credit history. Depending on how bad your credit is, obtaining excellent credit can take years. Don’t get discouraged! Practice solid financial habits and celebrate the small victories along the way. No matter what your current score is, with a plan in place and motivation to achieve your goals, an excellent credit score is within your reach.
Lakeland Bank offers a variety of credit card options. To learn more, click here.