5 Quick Tips to Build Credit

Whether you like it or not, good credit is essential. If you ever plan to do things like buy a car, finance a home or get a great rewards credit card, you need a good credit score that can provide the support you need.

If you don't have great credit—or if you have no credit—this can be disheartening to hear, especially if you have big plans to do something like buying a house in the near future. However, bad credit today doesn't mean bad credit forever. These quick tips to build credit can teach you how to build credit and how to make sure your score stays as high as possible.

Before we jump in, a quick note: building credit, whether from scratch or to repair a poor score, is a long process. There are no quick fixes in credit repair, so be patient, stay the course and follow the rules. In the long run, your hard work and perseverance will pay off with a score you can be proud of.

1. Make All Your Payments on Time

The best quick tip to build credit is to make loan and credit card payments on time, every time. Late payments can harm your credit significantly because they imply that you aren't able to meet your obligations. Sure, you might forget a few times, but when you continually miss payments the bank isn't going to assume you're sometimes absent-minded. They're going to assume that your payments don't fit in your budget.

If you can't keep all of your dates straight, it may be time to use a calendar. Set alerts in your phone, add due dates to your email calendar or jot dates down in your planner. Staying organized is the single best way to make sure a loan never goes unpaid.

Some lenders and credit card issuers allow for automated payments. With this system, payments will be withdrawn from your bank account on a preset date without you so much as lifting a finger. For those with enough income to pay all bills, this can be a great tool. However, if you're concerned about having enough money to cover all your payments or occasionally need to make minimum payments, this can be a risky choice.

2. Keep Credit Utilization Low

Credit utilization, or the amount of your total available credit you are using, might not seem important. However, this is actually one of the major factors credit bureaus look at when determining a credit score. If you're hoping to build credit, keeping credit utilization in line with the norms can be a valuable tool. A credit limit at or below 30% is ideal, because it shows that you aren't relying on credit to cover your finances.

Say, for example, you have a credit card with a limit of $2,000. In any given month, you should try to stay under total net spending of $600. This implies that you're able to pay off your expenses without requiring all or even most of the credit available to you.

If your cards are maxed out and you're only able to make minimum payments, your credit utilization will cause your score to go down. Responsible use of credit is one of the best ways to keep your scores high.

3. Keep Older Accounts Open

If you got a student credit at age 18 and no longer use it, you should close it, right? Wrong. Credit history plays an important role in your credit score. The shorter your history is, the less information creditors have to work with.

A credit history of one year of on-time payments and reasonable utilization is positive, but it doesn't say much about habits over a longer period of time. But a credit history of 15 years with on-time payments is far more indicative of healthy habits and responsibility over the term of something like a 15- or 30-year mortgage.

Closing an account removes it from your credit history, erasing potentially years of hard work. It's fine to close accounts you aren't using and don't plan to use in general, but keep your oldest accounts open whenever possible. The longer your credit history is, the better you will look to lenders.

4. Don't Open Accounts Unnecessarily

When you're in the market for a new credit card, a mortgage or a car loan, it's fine to apply as needed. However, too many applications can create problems.

Every time you apply for a new account, the lender will perform a hard credit check to verify your creditworthiness. This is an official check into your credit and will show up on your credit report whenever it occurs. Hard inquiries can cause a score to drop but usually only temporarily. However, ongoing hard credit checks can result in a substantial tumble that may be hard to recover from.

Some services use soft credit checks instead. Unlike a hard check, soft inquiries won't affect your credit score, regardless of frequency or quantity. Soft credit checks are often performed by non-financial resources, like auto rentals, before making a short-term agreement.

When applying for any kind of service that may check your credit, it's important to know whether a check will be hard or soft. The fewer hard credit checks you endure, the better.

5. Dispute Errors on Your Credit Report

The information on your credit report is extremely important. Credit bureaus, like Equifax, Experian and Transunion, apply a weighted calculation to these elements to create a score that reflects credit worthiness.

Unfortunately, it's not guaranteed that the information on your credit report will be correct. Around 20% of credit reports have errors. Some are minor, like an incorrect address, while others are major, like a delinquent account that belongs to someone else. Serious errors can cause your score to drop significantly, through no fault of your own.

To prevent this, make a habit of checking your credit report. The government-backed Annual Credit Report website gives all Americans free access to a credit report every 12 months, making it easy for you to check for free. You can also access your Credit Report Card and get information on how you might boost your score through Credit.com.

If all information is accurate, there's nothing more you need to do. If it isn't, however, file a dispute as soon as possible. All credit bureaus use a similar dispute process that you can use to flag errors. It's not exactly fast and easy, but disputing errors can be an effective way to keep false information from hurting your score.

Building Credit Takes Time—But It’s Possible 

Building a great credit score isn't easy, but the benefits are well worth the effort. From access to mortgages and car loans to lower interest rates, there's a lot strong credit can do for you. When you know quick tips to build credit, you can truly take charge of your financial future.

If you want to make sure your credit score is the best it can be, let us help. Check out Credit.com to learn how to master your credit. Want a little extra support? See how ExtraCredit can help you build, guide or restore your credit with ease.

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