When it comes to building up your credit, there is no overnight approach. If there were a pill you could take or a person you could call to simply boost your credit, you’d already know.
Building credit takes discipline and time, both of which you have or else you wouldn’t be reading this article in the first place. So sit back and consider the following ways to build up your credit.
Understand what exactly is going on when building credit
You might think your expenditures and debt equals your credit score. This is not entirely accurate, but it isn’t far from the reality either. However, there are a variety of factors that weigh on your credit score, noted Nerd Wallet.
You already knew that your past credit expenses factor in to your total score. But this doesn’t mean that historic bad payments will prevent your credit score from improving. Your credit score is an ongoing rating, which means new payments toward you credit matter. And not only that, but they weigh more heavily than old credit payments, no matter how late they were. In total, your entire payment history makes up 35 percent of your credit score.
Having current debt is not a serious problem, depending on how much it is, how many cards it exists across, how much student debt or home loans that aren’t on cards and what your total spending limit is. Your current debt status makes up 30 percent of your total credit score. While it might be a no-brainer, paying down current debt in a timely fashion also bears well on your payment history. These first two items are the majority of your credit score, so do your best to knock these two out.
Duration of Credit History
This can work in your favor if you have been using credit for a long time. However, it can work against you if you are just starting out. If you are building your credit score from nothing, then it’s advisable to not accumulate too much debt. Additionally, whatever debt you do accumulate, no matter how small, it is important to keep up on payments. If you are rebuilding your credit score after a bout of bad credit, your long standing credit line may work in your favor if you consistently keep on pace with your payments. Length of credit makes up 15 percent of your total credit history.
Making new purchases with your credit can be beneficial if you pay them off on time. It will add more payments to your total history, making it longer, but it will demonstrate you are active in using and eliminating credit. While it is certainly not advised to go overboard on your new credit purchases, a few small purchases here and there that you know you can pay off could be beneficial. New credit accounts for 10 percent of your total credit history.
Different Types of Credit
Believe it or not, different types of credit matter differently. If you have a significant amount of debt on one credit card it doesn’t look good for your score. However, not that any high amount of credit looks good, but having debt spaced out in smaller quantities across several cards or lenders can help your score more than a single large lump of debt. This can especially true if you are earning points for different credit cards. For instance, if you have a card the earns you points when you purchase groceries, and another that earns you points towards gas, using these cards for these purposes can help you make the most out of your credit. Yet keeping track becomes more difficult the more cards you have, so it is up to you to be responsible and pay off your credit on time.
Be Realistic about Rebuilding Your Credit Score
If you have had a period of bad luck then it is time to rebuild your credit score, which requires more effort than building a score from scratch. When rebuilding your credit score, it is best to focus on your current debt and eliminate it, according to myFico. Sure, easier said than done, right? Yes, but what isn’t. Take charge of your credit score and eliminate your debt.
“Be confident and realistic when building your credit.”
Set Up a Payment Plan
You know how much debt you have, what your current expenses are and how much income is coming in. Set aside an amount every month to make sure you meet your monthly payments.
Stop Making Impulse Purchases:
While a cup of coffee doesn’t cost that much in the morning, making the same small purchase morning after morning adds up. Try getting up a bit earlier and making coffee in your home before leaving for the day. The same goes for lunch and snacks. Pack a meal so you don’t have to go out to eat every day. Set a grocery budget and stick to it. Yes, a treat here and there is necessary, as treats are important. But after just a week of eliminating these impulse buys, you’ll be amazed how much you can save. And then you can out it toward your credit.
Building credit is not easy, whether from scratch or from a place of bad credit. But if you put your situation in perspective, take responsibility and face your credit you will be able to have a strong credit score and confident spending habits.