Build Your Credit Score With a Solid Plan

Having good credit is more than a luxury. It is helpful in many aspects of life. If you want to make an expensive purchase such as a house or car, unless you are independently wealthy, you are going to have to borrow money. Credit cards can be lifesavers if you get hit with a major expense that you can’t ignore, such as damage to your home or car. Renting an apartment often requires a credit check and some potential employers will run one as a character reference. The higher your credit score, the better of you are. You need a plan to build your credit.

Tracking Your Score

To effectively build your credit score, you have to be able to monitor it. There are companies that will allow you to do this for no cost such as free credit score by Credit Sesame. Once you are able to see your current score, you need to know how the ranges work. Credit scores go from 300 to 850 and are rated as follows:

  • 300-579 – Poor
  • 580-669 – Fair
  • 670-739 – Good
  • 740-799 – Very Good
  • 800-850 – Excellent

Now that you know how the ratings work, you need a plan to build your score.

How Your Score Is Determined

There are three national credit bureaus, Equifax, Experian, and TransUnion. Each of these reports on your credit history to FICO, which determines your score. The factors used are:

  • Age of Credit – The average length of time you’ve had credit with all of your accounts as well as the age of your oldest more  : topworldzone
  • History of Payments – How well you make your payments on time and pay off accounts.
  • Debt to Credit Ratio – The total amount you owe compared to how much total credit you have available.
  • Applying for New Accounts – How frequently you apply for credit from other lenders.
  • Type of Credit – The kinds of accounts you have such as mortgages, revolving credit lines, installment loans, and credit cards.

How to Improve Your Score

It can be difficult to get credit without a credit history. A good way to start is to apply for a secured credit card. These are easy to get as you are required to deposit the amount of credit you are given, usually $259-300, as collateral against your charges. Over time, if you make your payments, you no longer need the deposit and your account becomes unsecured. Now your foot is in the door.

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Always make payments on time. It’s best to try to pay more than the minimum as you will then be putting more money on the principle and will pay off your debt more quickly. Make sure to never be late as this will drop your credit score.

Keep your total debt less than 30% of your total credit. Maxing out cards is a bad idea. Your credit can quickly spiral out of control and your score will plummet. A good idea is to save for something you want to buy, then purchase it with the card. When the bill comes, use the money you saved to pay the entire balance.

As your score grows, you can gradually apply for better cards or request a limit increase. Don’t apply for too much credit all at once as this will also negatively impact your score. You must be patient when building credit. Eventually, you may be able to get a car loan or mortgage. Before doing so, make sure you can afford the monthly payments.

Having good credit makes many things much easier. A high credit score doesn’t just happen, You have to work on it. By creating a solid plan and sticking to it, your score can grow to a number that will make you an excellent credit risk.

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