Whether you’re in the market for a new house, car or another major purchase, you’re going to want to make sure you’re creditworthy. While it can take time to build good credit, there are some habits you can adopt to boost your scores and, subsequently, your reputation in the eyes of lenders and financial institutions.
So, with that in mind, here are four habits that can help you build good credit.
1. Pay Now, Not Later
Getting into the habit of making timely payments is one of the easiest things you can do to up your creditworthiness. Lenders and financial institutions like seeing applicants that are on top of their finances and make a consistent effort to pay back their loans.
Ensuring that your payments go through on or before their due date month after month demonstrates your ability to properly manage a financial commitment.
If you struggle to stay on top of your payments, you may want to consider writing a schedule for yourself or setting reminders in your phone. Most companies (whether it be a credit card or student loan issuer) offer online payments, so you might be able to set up automatic bill pay each month, if you so choose. (Just be sure to still keep an eye on your statements for fraudulent charges or, even, new fees.)
Remember, a first missed payment can cause a good credit score to plummet temporarily, so it’s in your best interest to stay current with your payments.
2. Don’t Max Out Your Credit Limits
Having a high credit limit doesn’t mean you should use it all. Credit scoring models will usually look at how close you get to maxing out your credit limit (collectively and on individual cards) and the closer you get to hitting your cap, the less good you look to creditors.
Getting into the habit of managing your credit utilization (how much debt you owe versus your total available credit) can help you make a good impression on creditors and avoid putting yourself into hot water.
The general rule of thumb is to stay below at least 30% and ideally 10% of your available credit at any one time. If you find yourself constantly maxing out credit cards, you may want to consider freeing up more cash flow or developing an emergency fund to help cut back your usage.
You might also want to stick to a strictly cash budget while shopping to minimize the chances of financing an impulsive shopping spree.
3. Curb Your Appetite for Credit
Applying for extensive amounts of credit at one time can put a dent in your credit score and, consequently, have a negative effect on your creditworthiness. Even if you’re simply trying to determine which card would be best for you, having too many credit inquiries can send a mixed message to lenders.
They could make the assumption that you were denied credit from other lenders or that you were looking to open more credit lines than your wallet could afford.
Before applying for any line of credit, you should do extensive research to make sure that the financing is the best option for you. If you need to fill out multiple applications, try to limit them to a 30-day window. Most credit scoring systems will group inquiries regarding certain financing, like a mortgage or auto loan, for comparison-shopping purposes.
4. Check Your Credit Report for Errors
Making a habit of regularly checking your credit report can be a big help in improving your creditworthiness. Reviewing your report on a fairly regular basis can help you spot troublesome errors (you can see why they typically occur here), prevent identity theft and ensure that your information is up to date.
Catching these issues early on can minimize the chances of having poor credit when you apply for a new line of credit. (You can check your credit by pulling your credit reports for free each year on AnnualCreditReport.com and viewing your credit scores for free each month on Credit.com.)
While improving your credit can take a good amount of time and effort, doing so will drastically improve your financial situation. Adopting these habits won’t just help you acquire the loans you need, but the subsequent boost to your credit score will also enable you to get them on even better terms.
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