7 Ways to Establish Good Credit
7 Ways to Establish Good Credit
Last Friday we talked about the difference between a credit score and a credit report and what elements actually make up your score and report. We also talked about actions that can hurt your credit score; so, this week we are bringing you seven ways to establish good credit, which includes raising your credit score and improving your credit report. If you haven’t read our previous post yet, you can read it here to catch up.
No one is perfect, and we’ve all made mistakes that can damage our score, but there is nothing that can’t be fixed with persistence and time. If you have been struggling with a low credit score, read below to learn what you can do to raise your credit score back up. If at the end of this blog, you decide that you want to take steps to improve your credit score, but you are struggling to figure out where to begin, call us at (504) 885-6871 and make an appointment with Kristy Adams, our VP of lending and certified financial counselor to plan out your first steps.
- Pay your bills on time. The biggest way to begin improving your credit score is to pay your bills and loans on time every month. Remember that payment history makes up 35% of your score, so improving this will significantly raise your credit score. Pay off your credit card in full every single month. You should never be spending more on your credit card than what you make in a month. Paying off your credit card in full will improve both your payment history and your capacity, which together is 65% of your credit score. You also need to be paying your rent, cell phone, and utility bills on time as many companies and landlords will record those payments on your credit report. Setting up automatic payments can ensure that you are paying every bill on time
- Save regularly. Saving regularly shows a lender that you have the discipline to save money for a rainy day. It also ensures the lender that you will not miss payments if an emergency comes up because you have a safety net in place for yourself.
- Maintain a checking account without overdrafts. Unpaid overdrafts may be added to your credit report and can hurt your credit. If you have any unpaid overdraft fees, pay them off as soon as possible and revisit your budget to make sure this doesn’t happen again.
- Review your credit report at least once a year. Last week we mentioned that about 25% of Americans found mistakes on their credit report. Negative information such as late payments on credit cards and collection accounts stay on your credit report for seven years while bankruptcies stay on your report for a decade. If you see any of these on your report that are past their statute, contest your report to have that information removed. You should also be looking for any unauthorized accounts or possible identity theft. You can order your credit report for free here.
- Make monthly payments on debt. This includes all of your loans and any collections that you may have. Making at least the minimum monthly payments shows that you are working to reduce your debt and improves your payment history. If you have been falling behind on some of your loans, look at your budget and see what needs to be changed in order to pay your loans.
- Handle your credit wisely. This is especially important for young people who do not have a long credit history. A lender wants to see if you are able to handle credit at all. In order to show your responsibility, you might need to open a secured charge card or obtain a cosigner on your loan – almost like training wheels. Once you have a good history with those lines of credit, you can open a credit card or obtain a loan by yourself.
- Give it time. You aren’t going to see changes in your credit score overnight. It can be frustrating, especially if the reason your credit score is low is because of mistakes you made years ago. Depending on the severity of your situation, it may take a lifestyle overhaul and years of work to improve your credit. That being said, it is definitely worth the effort. And if you are a young person who is frustrated with a low score, remember that length of credit makes up 15% of your score. After having some credit established for a few years, you will begin to see your score improve.
If you are a POECU member and you want to improve your credit score but just have no idea where to begin, remember that you can make an appointment with Kristy Adams, our certified financial counselor.