How do I improve my Credit Score?

You’ve heard about how important a credit score is to buying that new car or computer you’ve always wanted. So how do you start building it?

Before we get to that, let's debunk a few common myths...

1. If I pay off my card balance in full and on time every month, then I’m doing everything possible to improve my credit score.

Not true! Payment history is important; it’s the biggest factor in determining your credit score, as we explained in a previous article. However, there are other factors that contribute to your score. One overlooked item is what’s called your credit utilization, or how much of your available credit you spend. You don’t just trust that your friend is money-wise based on whether they always pay back what they owe you. You also look at whether they’re spending within their means. Banks work the same way!

2. I should aim for a credit utilization rate that’s about 30% of my total

Again, this is a great rule of thumb. However, "the 30% level is not a target, but a maximum limit.” says Rod Griffin, Experian’s director of public education (one of the three largest credit bureau’s in the country). Anything more will negatively affect your credit rating, but there’s no rule that says you shouldn’t use less than 30%. A lower utilization rate can actually help you build a better credit score!

3. I can’t build my credit score without a credit card

But wait... You can! The best way to build a credit score is to start using a credit card, but even before then, you can start by reporting on your rent. Remember, your credit score is simply a reflection of whether you pay back what you owe across a variety of financial avenues. While rent is not automatically included on your credit report, Experian now accepts rent reports through their RentBureau. You can now make your off-campus housing costs count towards your credit score in the US!

Besides these, here are some other helpful tips to follow:

  1. Pay off your credit cards in full every month.

  2. Avoid making too many new credit applications. When you apply for many new lines of credit in a short period of time, this suggests that you’re desperate for money, which makes you less trustworthy.

  3. Check your credit report yourself! You can do this at least once a year and figure out what you’re doing that may be hurting your score. Keep an eye out for any errors that are dragging down your score so that you can correct them.

Building your credit score is all about being diligent and applying a few simple rules. We hope these have been of use to you!

Source: Nerdwallet


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