Tips & Tricks To Build A Better Credit History

  • May 10, 2021
  • Credit Tips
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Building a good credit history is essential to your financial future. This article will teach you how to responsibly build your credit, while avoiding the mistakes that could hurt your score and cost you money.

The Basics of Credit Reporting

Here are some things you should know before building or rebuilding your credit:

Credit reports are used by lenders to determine how risky it would be for them if they loaned money to someone with low or no credit history. If there’s something in a report that might make a lender think twice about granting the loan, then this can lower their credit score significantly. Late payments, repossessions, bankruptcies, even divorce can all have a negative impact on your credit report.

When you owe someone money, that debt can come in many forms which can include mortgages and car loans. All debts – regardless of type – should appear on your credit report if they are legitimate, but some types of debt (e.g., a mortgage) don’t need to be on your report for them to count against when the credit bureaus determine your credit score.

There are four major factors in determining how risky someone is to lend money to:

  • Payment history – do they always make payments on time or do they default?
  • The types of credit a person has access to – is their credit card debt higher than their mortgage?
  • The length of credit history – do they have a long-term, steady pattern of borrowing money and repaying it?
  • How much available credit a person has (see our article on Debt Ratios).

Practical Solutions To Rebuild Your Credit

If you’re trying to rebuild from bad habits like missing payments or defaulting altogether, go ahead and put as much money as you can toward those debts. If you are deep under water in debt, you may want to speak to a bankruptcy attorney to discuss your options.

To start building credit history with no previous credit score, there are options like secured cards and store cards – but an important thing to remember when building up your credit history is credit should only be used for convenience items or emergencies – not everyday purchases. You should also avoid taking out loans until you have at least six months’ experience with managing budgeting wisely.

Here are some tips to build up good habits:

  • Start small by adding one new account each year instead of trying to do everything at once. Pay all of your bills on time every month including utilities, phone service, cable TV bill etc., even if it means delaying purchases until payday when necessary.
  • Use credit cards responsibly (pay off monthly balances each month and never spend more than you can afford to pay back).
  • Be patient. It will take time, but it’s worth the effort in order to establish a good credit history.

Here are the top four credit-building tips we recommend:

  • Pay your bills on time every month, even if it means delaying purchases until payday. Contrary to popular belief, a timely payment history is actually one of the most important factors in determining how good your credit score will be.
  • Use credit cards responsibly (pay off monthly balances each month and never spend more than you can afford to pay back). A low balance relative to available credit that’s paid off at least once per year is an indication of responsibility. This keeps lenders happy as well as ensuring that their rates stay favorable for future borrowing opportunities – such as when you need a car loan with bad credit or want financing for a home purchase.
  • Check your credit report often and dispute any inaccurate information. Credit bureaus (and creditors) can make mistakes that may be pulling down your score. Be sure to check your credit report with all three bureaus (Experian, Equifax, and TransUnion).
  • If your credit will allow, consider taking on a longer-term debt obligation (like a new car) and pay your bill in full every month. Having a debt marked as “paid in full” every month over time can really help increase your overall credit worthiness.

In Conclusion:

Whether you are just starting off on your credit journey or trying to repair a poor credit history, the experts at CreditYES® have dealerships and options to help you find a new vehicle today.