If you’ve ever applied for a loan, you know that your credit score is essential. A high credit score means you’re a low-risk borrower, which could lead to a lower interest rate on your loan.
A low credit score could also lead to a higher interest rate and could mean you won’t get approved for the loan.
But what if you don’t have a credit score? Maybe you’ve never taken out a loan, or perhaps you have, but you have bad credit. Either way, you can do things to build your credit so that when you need to take out a loan, you’ll be in a better position.
The following are a few tips on how to build credit with your credit cards:
Pay Bills on Time
Your credit score is based on various factors, but one of the most important is your payment history. Making timely payments on your bills every month will help boost your credit score over time.
Remember that you should always aim to pay more than the minimum due each month, as this will help reduce your overall debt and improve your credit utilization ratio.
Maintain a Low Usage Rate
Another important factor contributing to your credit score is your credit utilization ratio. This is simply the percentage of your available credit that you are currently using.
Experts typically recommend keeping this number below 30%, as anything higher could suggest you struggle to manage your debt. You can improve your credit utilization ratio by increasing your available credit or lowering your overall debt levels.
Apply for a Store Card
Store cards can be a great way to build credit, as they typically have lower interest rates and easier approval requirements than traditional credit cards. Plus, many store cards offer rewards such as discounts or points you can redeem for merchandise or gift cards.
Just read the terms and conditions carefully before applying, and make sure you can afford to pay off the balance each month to avoid accruing interest charges.
Become an Authorized User
Another easy way to build credit is to become an authorized user on someone else’s credit card account. This means you’ll be able to use the card but won’t be responsible for making payments.
The primary cardholder’s payment history will be reported on your credit file, which is a great way to boost your credit score relatively quickly. Make sure you trust the person you’re becoming an authorized user for, as you’re ultimately responsible for any debts they accrue.
Limit Your New Credit Requests
When building up your credit score, you must be careful about how many new requests for credit you make.
When you apply for a new loan or line of credit, the lender will run a hard inquiry on your credit report. Too many hard inquiries can negatively impact your score in a short period, so it’s best to space out any new applications evenly over time.
Use a Secured Credit Card
A secured credit card is a great way to rebuild or establish a good credit history. These cards work just like traditional credit cards but require a security deposit upfront, serving as your line of credit limit.
This is a great option if you’re not currently eligible for a regular unsecured card or need to rebuild bad credit. Always pay the balance in full each month, so you don’t incur any interest charges.
Getting a higher credit score can take some time, but it’s worth the effort. By following the tips above, you can improve your credit score and become eligible for better loan terms in the future.