How to Start Building Good Credit

Money SmartsSeptember 6, 2024

Your credit score is a key part of your financial well-being. Think of your credit score as a report card that shows lenders how likely you are to pay back the money you borrow. If you have a good credit score – one that’s 700 and above – you’re more likely to be approved and receive better interest rates on loans.

A bad credit score – one that’s 600 and below – can make borrowing money more expensive and difficult. For example, if you apply for a loan with a low credit score, you’re more likely to be denied or charged a higher interest rate. A bad credit score can also impact your ability to rent an apartment.

Your credit score is based on the following factors:

  • Payment history
  • Credit utilization
  • Length of credit history
  • Types of credit
  • New credit

Read on to learn about how to start building good credit.

Pay Your Loans and Credit Cards on Time

Because payment history is one of the key factors that impact your credit score, missing payments or making late payments can hurt your score. Instead, make sure you make your payments on time every month to build positive credit history.

Keep Your Credit Utilization Low

Maxing out your credit cards can hurt your credit score. Avoid spending more than 30% of the total credit available to you to improve your credit score. Paying your credit card balance in full each month can help keep your credit usage low.

Have a Mix of Credit Types

The types of credit you have impact your credit score as well. For example, it helps your score if you have a mix of credit types, like loans and credit cards. However, your credit score can be negatively impacted if you apply for too many types of credit at once.

Build Credit History

Showing lenders that you have a history of using credit responsibly can improve your credit score. Specifically, the longer credit history you have, the better.

Consider a Credit-Builder Loan

If you’re just starting out on your financial journey and don’t have a credit score yet, or you have a low credit score, a credit-builder loan can help you build or improve your credit score. Credit-builder loans provide an opportunity to increase your credit score through making on-time payments. With an improved credit score, you can continue working to meet your financial goals.

Securing a Strong Financial Future with Good Credit

Building good credit takes time. If you check your credit regularly and use it responsibly, you can improve your score in the long run. With a good credit score in hand, you’ll put yourself on the path to reaching your financial goals and securing your future.

The information in this post is for educational and informational purposes only and does not constitute investment or financial advice. You should consult a licensed financial advisor before investing in any financial product or service.

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