Credit Building

How to Build Your Credit

So, you want to build your credit score up but don’t know how? You’ve come to the right place. I’m going to tell you exactly what credit is, how to improve it, and how to maintain it.

Definition of credit:

The term credit is your ability to borrow or buy things and then repay them at a later date.

What is a credit score?

A credit score is actually a scoring system created by the three financial institutions: TransUnion, Experian, and Equifax. This system helps creditors determine a borrower’s (your) eligibility for borrowing limits based off past financial history. Most major financial institutions report financial data back to these companies, allowing them access to your credit history and the ability to create a score. The score is in the status of a three-digit number ranging from 300-850.

This number is a basis that you can increase or decrease by your financial activity and is used by multiple organizations to determine your creditworthiness. Most organizations will reject certain individuals with a lower score so it’s important to increase and maintain your score as much as you can.

Credit Report:

The three credit bureaus gather your information and create one report. A credit report is sort of like a report card for your financial status, it shows a lot of information including:

-        The quantity of accounts you have along with what is owed

-        Any late or missed payments

-        Any loans you’ve taken out and their balances

-        Any accounts that have been in collections/disputes

-        Any roadblocks with finances such as bankruptcy or foreclosure

When creditors “pull” credit, what they’re pulling is your credit report. This will tell them your financial history and give a good explanation for how you’ve handled your finances so far.

Alright, I have what’s considered a lower score, what do I do?

First things first, always make your payments on time. This is the number one factor of causing scores to drop. Next, watch how much you’re spending at one time on one credit card. As a general rule of thumb, spend under 30% of your limit. You want to keep your credit accounts open as this is the backbone of your history. How can you get credit history if you close your accounts? It’s a great idea to keep your very first credit card open as this has the longest standing time associated with it. Next, do not apply for too many lines of credit at one time. This can hurt your credit, try to space your applications 6-12 months apart.

What if I don’t have any credit at all?

This is okay, everybody starts at this point and works their way up. One easy way to establish a credit history is by opening a secured credit card. This is a credit card that you pay up front for with a down deposit or a security deposit. This means that if you do not pay your bill on time, the issuer will take your down deposit. These cards are available to persons without or lower credit because the risk for the issuer is low. The down deposit is normally close to your credit limit, but all cards and limits are different for everybody. Use your card wisely and make sure to make on-time payments.

Another option is to get a co-signer on a credit card. The co-signer should have good credit history already and aid in your score increasing. The only downside is if the payment is not made, the co-signer is equally responsible for the amount owed and can hurt their credit as well.

Always try to have good credit habits. These include:

-        Making payments on time and paying the minimum amount

-        Keep your credit card accounts open, especially your longest standing accounts

-        Avoid applying for multiple credit cards at the same time

-        Keep your credit usage low, aim for under 30%

And remember, credit scores can increase and decrease depending on your financial habits. If you create good and sustainable financial habits, your credit score will display accordingly. You can check your credit scores with free programs including Credit Karma to see your progress.

 Reach out with any questions

Benson Ringle
Loan Officer NMLS 1516626

Phone: 218-507-0429

Email: Benson.Ringle@supremelending.com