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✔ Having a good credit score can help you get a lower interest rate on such things as installment loans and mortgages
✔ Simple practices can build a credit score quite quickly
✔ When you pay and how much you pay are big factors in building your credit score
Building a good credit score – which you want to have to get approvals and good interest rates on such things as installment loans and mortgages – can be achieved by making these monthly practices a habit
1. Pay more than the minimum
Ideally, if you have a credit card, you’d bring the balance down to zero every month. Credit agencies look at your payment history, which is one big factor in determining your credit score. So, if you use your credit, but also pay it off, you are well on your way to building a great credit score. One trick is to use your credit card, for instance, for a recurring monthly expense, such as a cable bill, which you pay off every month at, or just before, the due date. One tip is to not pay it right away, as you want the use of the credit and then the payment of it to be recorded. If you can’t pay your balance every month, pay more than the minimum – it will mean you will pay less interest in the long run, and show a better payment history.
2. Always pay on time
Your credit report will record how often you are late on payments (and that history can stay on your report for up to 7 years), so it’s very important to always pay on time for such things as installment loans. As mentioned above, don’t pay too quickly though. You want to make sure that your use of credit and payment get recorded. A good way to make sure you pay on time is to set up automatic payments or a reminder alert on your phone.
3. Keep only as much credit as you need and have different types of credit.
One myth is people think that the more credit cards you have, the better it looks on your credit score. But that’s actually not true because having too many types of one credit puts you at risk of getting into too much debt. Most experts advise having one to two credit cards. What will help build your credit score is if you have a variety of credit, such as a credit card, installment loan and mortgage – the types of credit you have is one of the five factors that affects your credit score.
4. Keep your balances low
Another factor that affects your credit score is how much of your available credit you use. It’s called the credit utilization ratio. Most experts suggest that you use no more than 30% of your available credit. So that means, if you have a credit card with a $1,000 limit, you don’t have a balance greater than $300 at any one time.
5. Build a strong track record
The length of your credit history is very important when it comes to your credit score. That makes sense because if you have a long track record of paying your debts on time, lenders are likely to see you as a good credit risk. So, if you have a credit card you’ve had for many years and think maybe you’d like to close that out because you have another card, it’s probably better to keep that older card. Use it now and again to keep it active.
Keep these simple practices up and, before you know it, you’re well on your way to building a great credit score!