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How To Build Good Credit

Credit is something that is very important in our society and is the currency of financial trust.  If you do not have good credit, you have the potential to lose out on a lot of savings, investment opportunities, as well as jobs.  So in this article, we will go over the key points you need to know in order to know how to build good credit.

1) In order to build good credit, you need to know where you stand first.  That means you need to get a copy of your credit report. Profinity will give you a free credit score when you sign up for their 30 day trial.  Granted, it is not the official FICO score but it gives you a great picture of where you stand.

2) Develop a habit of paying your bills electronically.  That means you should set up automatic bill pay with your bank so that bills come right out of your checking account on certain dates every month.  Automatic bill pay is a great way to automate paying your bills so that you will never have to remember to pay them again.

3) Develop a habit of paying your credit card balances off right away.  The amount of credit you used to the amount of credit allowable (also called credit utilization) has a huge part to do with your credit score.  Credit bureaus do not want to see you spending near your credit limit.  Keep your credit usage below 35% of your credit limit.  However, ideally, you should pay them off at the end of each billing cycle so that you never have to pay interest.

4) Use credit often.  This is especially important if it is your first credit card.  You should use your credit card often so that credit bureaus can see that you have a pattern of paying on time.  But again, you should always pay off in whole whatever spend on your card.

5) Don’t shop around for credit too often.  Shopping around for credit too often can hurt your score.  If you want to shop around for credit, do it all in bulk, within a 30 day time frame.  That is because credit bureaus count hard inquiries against you.  However, if all the hard inquiries against your credit report are within consecutive days/weeks, the credit bureaus will know that you are just trying to obtain new credit and just shopping around.  However, if you do this for months on end, they will wonder why you are shopping around for credit so often.

6) Piggyback on someone’s credit.  If you do not have established credit or a lack of credit, you should become an authorized user on someone’s credit card.  The new FICO score formula has made it somewhat harder to piggyback on someone else’s good credit but it is still possible if you are named an authorized user of the card.  Being an authorized user means that you are authorized to use someone else’s credit card.  This is an extremely easy way to build credit.

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