Understanding Credit Scores
Building a Healthy Credit Score
Start with a Credit Card: If you’re new to credit, consider applying for a secured credit card or a credit-builder loan. These are designed to help you establish credit with manageable risk.
Pay Bills on Time: Your payment history significantly impacts your credit score. Always pay your bills on time, including credit card payments, utilities, and loans. Setting up automatic payments can help ensure you never miss a due date.
Keep Balances Low: Aim to use less than 30% of your available credit limit on credit cards. High balances can negatively affect your score, even if you pay off your cards each month. Keeping your credit utilization ratio low shows lenders you manage credit responsibly.
Diversify Your Credit Mix: Having a mix of credit types, such as credit cards, auto loans, and mortgages, can positively impact your score. However, only take on debt you can manage and avoid opening too many new accounts at once.
Maintaining a Good Credit Score
Monitor Your Credit Report: Regularly check your credit report for errors or fraudulent activity. You can get a free report annually from each of the three major credit bureaus: Equifax, Experian, and TransUnion. Dispute any inaccuracies you find to keep your report clean.
Avoid Frequent Credit Applications: Each time you apply for credit, a hard inquiry is made on your report, which can temporarily lower your score. Space out credit applications and only apply for credit when necessary.
Maintain Long-Standing Accounts: The length of your credit history matters. Keep older accounts open even if you don’t use them frequently, as closing them can shorten your credit history and lower your score.
Manage Debt Responsibly: If you have existing debt, create a repayment plan to reduce it. Consistently paying down debt improves your credit utilization ratio and shows lenders you are capable of managing debt.