Currently, the national average credit score in the United States is 700.
That figure has risen from 686, which was the national average at the height of the housing crisis.
The range of credit scores is 330 to 830. For those below the national average, it makes sense for them to want to improve their credit score.
Even those above 700 would benefit from raising theirs. The key to succeeding is knowing how to build credit.
For those who aren’t sure how, here’s what to do.
Check Credit Reports for Accuracy
Knowing how to build credit starts with checking their credit reports for accuracy.
Once a year, every person is entitled to a free credit report. There are three credit reporting agencies which will send their reports. Their names are Equifax, TransUnion, and Experian.
Look over each report, as they may differ from one another. Check for any errors in them.
If there are any errors, contact the credit reporting agency immediately. Notify them that there is an error in the report.
These errors could be a huge reason why a credit score is so low. It can take time to clear up a problem, so don’t wait.
Look Where Improvements Can Be Made
Check to ensure all personal information is accurate.This includes full name, address, social security number, and date of birth.
Next, check to make sure all credit accounts are being reported. Then check to make sure there aren’t any credit accounts that aren’t recognizable.
Check if there are any late or missed payments listed that were actually paid on time. Next, check to make sure there aren’t any accounts or applications for credit that are incorrect.
It’s important to know how to build credit. Building credit takes time, so make sure there aren’t items from long ago still appearing on the report.
Learn What Negatively Impacts a Credit Score
There are two ways a credit score can be negatively impacted. Here are the differences.
Other People’s Fault
One way is when other people do damage to a person’s credit score.
It’s hard to figure out how to build credit when an identity thief is opening up accounts under another individual’s name.
Know that there is a statute of limitations for certain collection accounts. Most collection agencies count on the average citizen not knowing this. Take immediate action if this has happened.
Sometimes, people have similar or the same name. Sometimes, they even can live in the same building. This can cause a lot of confusion for credit reporting agencies.
If that person went through something like a foreclosure and the names have been mixed up, it can wreak havoc on someone’s credit.
Ex-spouses can also wreak havoc on a credit score. If there is an instance where an ex was supposed to pay a bill but didn’t, it could still cause problems.
So can loans that have been defaulted on. If that defaulted loan was sold to several debt collectors, it can show up as multiple defaults.
The Fault of the Individual
Sometimes, a report is accurate. It just isn’t giving great information.
Clearing up these issues is how to build credit quickly.
Making late payments will always negatively affect a credit score. Creditors will view that individual as a larger risk. Late payments have the largest impact on a credit score.
The amount of debt an individual carries contributes to 30% of the FICO Score’s calculation. However, the amount of debt is also easier to clean up than a past payment history.
Creditors don’t like high debt. They worry the individual will pay them back first or last.
People new to credit cards will need to have patience. This is how to build credit. It takes time to build up a good credit reputation.
If there’s only one type of credit being reported, that can also cause a score to be lower. Carrying only credit cards isn’t always a good thing. Having a more varied credit history will help raise a score.
While it’s good to have a history of credit applications, taking out too many in a short amount of time doesn’t look good. Creditors will wonder why.
Take time to learn how to build credit properly.
Prevent Late Payments
As was already discussed, late payments are a huge factor when it comes to a credit score.
There are a few ways to prevent a late payment. The number one way is to set up payment due date alerts. Make sure to include every credit card and loan.
Get them organized. If the loans and credit card payments are all due around the same time, that’s okay. Just call up the company and ask to move the payment date.
It’s also possible to simply change the due date online. Make sure the dates are right after a pay date. That way, it will be easy to ensure there’s enough money to make each payment.
If being poorly organized is a problem, know how to build credit by setting up automatic payments. That way, each payment is made on time without the worry of forgetting to pay.
It’s also great to know there’s no way a bill will arrive too late or get lost in the mail.
If a late payment still happens, don’t be afraid to call up the company. Often a credit card company or lender is willing to forgive the late payment.
If there’s a history of making on-time payments, most credit card companies are quite willing to forgive a one-time late payment.
Don’t Close Any Accounts
While it might seem like a good idea to close an account as a way to improve credit, it’s not. Those who know how to build credit understand that shutting down a card is actually bad for scores.
That’s because shutting them down reduces the gap between available credit and the amount being used. If a credit score is higher than 750, it’s okay to shut down unused accounts.
However, don’t close them all at once. It’s ideal to keep open at least two accounts in order to keep a credit score high.
Don’t Allow Disputes to Turn into Collections
Disputes and medical bills can adversely affect a credit score. While it may seem easiest to ignore a dispute, take action immediately.
If a dispute or medical bill turns into a collection, it works against a credit score. Know how to build credit by paying the bill.
Even if it’s incorrect, it’s better to take the biller to small claims court than it would be to risk a credit score.
Pay the Highest Amount Possible Each Month
One way to build credit is to pay the highest amount of a debt each month. This also helps pay the creditor more quickly.
Stop using the credit cards with a balance on them. Then check out the interest rates on each card a balance is owed.
Start paying down the card with the highest rate first. Once that one is paid off, go to the next highest interest rate and start paying that down.
Even paying as little as $40 more than the minimum amount can help pay off the card more quickly.
Know How to Build Credit by Limiting Applications
While having at least two credit cards is a good thing, don’t go overboard by filling out tons of applications.
Yes, store credit cards might be offering a great discount for signing up. It might be hard to resist. However, just for applying the credit score will take a hit. Even if it’s not approved.
In fact, a hard inquiry will actually impact the credit score for a full year. Luckily, the credit score will start to improve almost immediately after applying.
While the hit is only around 3 to 5 points, which is small, for someone between two credit score tiers, it can do a lot of damage. It can also damage the credit score of someone applying for lots of credit offers within a short time span.
Don’t Carry a Balance
The smartest way to know how to build credit is to never carry a balance. Only buy what can be easily paid off when the bill comes.
Carrying a balance will only hurt a credit score. There’s also the interest rates to contend with.
If a balance can’t be avoided, try not to use more than 30% of the credit limit at any one time. The less of a balance, the better.
Open a Secured Credit Card
For people with a poor or bad credit score, opening a secured credit card may be a good option. A secured credit card is a type of credit card.
However, the owner of the card secures the line of credit by putting a deposit into a checking account. For instance, an individual may put in $400 and will be granted a $400 line of credit from the lender.
For people with bad credit, adding a new account with a positive payment history is a smart idea. It shows creditors that person is capable of paying back debt owed in a timely manner.
Always Do Research
While it’s easy to get into debt, with the right information, anyone can get out of debt. It may take time, but it is possible.
Do research to learn how to set and stick to a budget. We’re invested in helping our readers be at their best.
And keep coming back to lour blog earn how to keep more money and enjoy the good life.