Establishing good credit is important! Having limited credit history or a poor credit score can hinder consumers, making it difficult for them to rent or buy a home, obtain a loan, or purchase a vehicle. An individual’s lack of credit may also lead to high interest rates when signing up for credit cards — a poor score could result in paying an APR of up to 24 percent.
A high rating can make a person’s life much easier by letting banks and lenders know that you are financially responsible. While building credit may seem like a daunting task, making a few small, consistent changes can help dramatically boost one’s credit score over time.
1. Know Where You Stand
Knowledge is power. Though you may be tempted to ignore potentially bad news, bite the bullet and check your credit score. You can obtain a free annual report from credit reporting agencies Equifax, TransUnion and Experian. Many banks and credit unions including USALLIANCE Financial offer free credit monitoring for account holders so they can view their scores at any time.
Start checking your credit rating on a regular basis. This can help prevent identity theft or any suspicious activity that may appear on your account. Not sure how your score ranks? A credit score of 800 or higher is excellent, while 739-799 is viewed as very good. A score of 670-738 is considered good, and anything below 670 is considered fair to average.
There’s no reason to panic if your score is lower than anticipated. There are many simple ways that USALLIANCE can help you build credit. Signing up for a secured credit card, applying for a credit builder loan, monitoring monthly rental payments, and utilizing online budget or money management tools can dramatically boost your credit rating.
2. Pay All of Your Bills on Time
Are you guilty of paying your credit card, student loan, rent or mortgage payments a few days late? This seemingly harmless habit can negatively impact your score. A person’s payment history can account for up to 40 percent of his or her overall rating, which can be especially detrimental if they have a short or limited credit history.
Avoid making late payments and incurring fees or penalties by setting up automatic withdrawals through a bank account. These recurring payments can usually be taken out at any time, so schedule them a day or two after receiving your paycheck. This ensures that there are enough funds to fully cover all expenses. Additionally, you can edit these recurring payments at any time should you want to stop these recurring payments or change the payment amount.
3. Create a Budget
Budgets are a necessary part of adult life. Making credit-building payments on time can prove difficult if your student loans, rent/mortgage, insurance, groceries, utility and credit card bills amount to more than you make. Spending only what you can afford to in addition to avoiding gratuitous purchases can prevent you from incurring detrimental debt. Make a list of your monthly expenses to identify where you can cut costs.
- Does your spending exceed your income?
- Can you move into a smaller apartment and reduce the price of your rent?
- Is it possible to downsize to a smaller, pre-owned car with better gas efficiency than the model you’re currently driving?
- Can you ask for a lower interest rate on your student loan, or consolidate multiple student loans for a reduced rate?
- Can you take public transportation a few times a week to minimize how much you spend on gas?
4. Sign Up for a Credit Card
Using a credit card and paying it off each month builds credit because this activity is reported to the three major credit bureaus each month. However, it’s important to select and apply for the right card. Each credit card application results in a hard inquiry that delves into your credit history, causing short-term damage to your score, especially if you’re applying for multiple cards at the same time.
Opt for a credit card with no annual fee and a low interest rate. Those who have poor, limited, or no credit history can sign up for secured credit cards, which allows Individuals to deposit money up front into an account that can be used as collateral if they’re unable to make future payments.
Paying off the credit card’s balance in full each month will also help build positive credit history and increase your score.
When you’ve had your first card for at least 12 months, apply for a second one. Having an additional line of credit will increase your total available credit, which contributes to your credit utilization ratio.
How Do I Get Started?
Building or increasing your credit rating can seem like an intimidating process, but it doesn’t have to be. USALLIANCE can help guide your financial journey, from selecting the right secured credit card to establishing a budget.