7 ways to build a strong credit score
Figuring out credit can be intimidating, but it’s key to becoming financially independent.
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Check out these tips to boost your credit score:
Image: general_lock_spring1. Lock in on your credit report
Image: Search2. Sign up for credit monitoring
Image: general_hand_shake_butter3. Become an authorized user
Image: general_calculator_lotus4. Hack your debt
Image: credit_credit-building_iris5. Consider a credit-builder loan
Image: general_hand_snap_sky6. Put your payments on autopilot
Image: cards_credit-card_electricviolet7. Get a secured credit card
1. Lock in on your credit report
Understanding how to read your credit report is important. Your credit report records your credit activity and current credit situation.
Credit-scoring systems such as VantageScore® and FICO® use the information on your credit report to create your credit scores, which signal to financial institutions (like banks, credit card issuers and other lenders) the likelihood that you’ll pay them back.
Factors that influence your credit score
Your credit score varies by credit bureau, and several factors influence your scores.
Payment history
How often you make your payments on time. Aim for 100%.
Credit card usage
How much you owe compared to your total credit limit. Try to keep this to less than 30%. Carrying a balance to improve your credit score is a myth; paying off your balance in full each month will avoid interest charges.
Credit age
The length of your credit history factoring your oldest and newest accounts, as well as the average age of all accounts. The older your credit, the better.
Credit mix
The type of credit you borrow. Balancing different types of accounts, such as credit cards and loans, is seen as a positive — as long as you keep up with your payments.
Recent hard inquiries
How many times financial institutions have accessed your credit reports. The fewer, the better. Applying for multiple cards or loans quickly can signal risk to lenders.
Decrease credit stress by taking small steps toward credit building.
Image: finance_savings_lotus2. Sign up for credit monitoring
Credit monitoring services keep an eye on your credit report and let you know of important changes, like new accounts being opened in your name or big changes to your account balances. Identifying suspicious activity quickly can stop identity theft and protect your credit score.
In addition to Credit Karma, many banks and credit card issuers offer free credit monitoring services. If anything looks off, you can file a dispute with the credit bureau to have it corrected before it wrecks your credit.
3. Become an authorized user
If a family member or close friend has a credit card with a good payment history and low credit utilization, becoming an authorized user on their account can help your credit game. Talking about rules and expectations for your card usage upfront is a good idea to make sure it’s a win-win for both users.
4. Hack your debt
If you’ve racked up some debt, consider one of these popular strategies to pay it down, increase your credit score and take control of your finances:
Debt avalanche: Pay off your debt balance with the highest interest rate first, then focus on paying off the balance with the next-highest rate and so on. This approach can help reduce the total amount of interest you end up paying.
Snowball method: Pay off your smallest debt balance first while making minimum payments on all other debts, then pay your next smallest. This approach is ideal if quick wins motivate you.
5. Consider a credit-builder loan
A credit-builder loan can help you build or fix your credit score. It’s different from your usual loan, where you get a chunk of money and pay it back over time. With a credit-builder loan the lender puts the money you’re “borrowing” into a bank account. You make monthly payments toward the account. When the payments are complete, you get all the money and your payments get reported to the credit bureaus, which can boost your credit score.
6. Put your payments on autopilot
One of the most significant factors in your credit score is your payment history. Setting up automatic bill payments can help you avoid missing due dates. Late payments can stay on your credit report for up to seven years, so don’t sleep on setting up autopay.
7. Get a secured credit card
A secured credit card can help you build credit and usually has looser requirements for applicants. The downside: You’ll have to pay a security deposit upfront that’s typically equal to the card’s credit line. For example, you’ll likely need to make a $200 deposit for a card with a credit limit of $200. Consider looking for a secured card that allows you to “graduate” to an unsecured card after you’ve had it for a period of time.
A final word
If you don’t see an immediate boost to your credit score after trying some of these tips, don’t stress. Meaningful changes to your score can take months. Just keep at it — pay your bills on time every month, keep your credit usage low and avoid applying for multiple cards and loans at once.
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