So what builds good credit?
Officials at the Consumer Financial Protection Bureau have offered the following tips for building good credit and improving an individual’s credit score.
Pay your mortgage and bills on time, every time. An automatic payment from your bank can be a good way to do that, but make sure you keep an eye on your balance so you always have enough in your account to cover the payment. You don’t want it to bounce.
Don’t get too close to your credit limit. Credit scoring models look at how close you are to being maxed out on credit cards. If you use too much of your total credit lines, say by carrying big balances, you can hurt your credit score. Experts advise keeping your use of credit at no more than 30 percent of your total credit limit—some even say you should keep it at less than 10 percent.
Don’t apply for too much credit in a short time. Your credit score may go down if you apply for or open a lot of new accounts in a short period. Buying something and wanting the discount that comes with opening a new store card? Transferring balances from an old card to a new one? Do that too often and it will show up on your credit report as lots of new credit accounts, which is likely to hurt your credit score.
The more extensive your credit history, the better.
Credit scores are partly based on experience over time. The more evidence you have on how you get and pay for credit, the more information there will be to determine whether you are a good credit risk.
Here are some more ideas: Buying items with a debit card or cash will not build your credit score. Some are afraid of getting into trouble with credit cards, so they vow never to have one. The problem in buying with cash or using a debit card can be found in that it doesn’t establish a credit repayment history that will be reported to a credit bureau.
So, when you do need a loan for a big-ticket item like a car or home, you won’t have the credit file to make a lender willing to take a chance on you.
Pay with a credit card to build credit but try not to carry a balance and make sure you pay your bill on time. You’ll build credit by using your credit card even if you pay off your balances in full each month.
And, you’ll avoid finance charges since these only kick in when you carry over a balance from month-to-month, which happens when you pay only the minimum amount due or any other amount less than the full balance owed each month.
If you can’t qualify for a regular credit card, a secured card account that you put a deposit on can build credit, too. You can get a secured card from many banks or credit unions. With most of these cards your credit line starts out small, but as you demonstrate reliable payments, most companies will extend you more credit and eventually refund your deposit. Secured cards can be expensive and often come with a number of different fees, though, so before you resort to a secured card consider applying to see if you can be approved for a regular credit card with attractive features and pricing.
File an “active-duty alert” with the credit reporting agencies before you go on deployment. This makes businesses verify your identity before they issue credit in your name and should help protect you from identity theft. If you want to go even farther, you can freeze your credit. A freeze prevents prospective creditors from accessing your credit file at all, which will keep any new accounts from being opened in your name.
Keep an eye on your credit reports. You can get a free copy of your credit report from each of the three major credit-reporting agencies every year at www. annualcreditreport.com. (For more information about credit reports and credit scores visit Ask CFPB at www.consumerÂfinance.gov/Âaskcfpb.)
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