You’ve been approved for a credit card or credit line, now what? This is the time to make careful steps in building credit in a responsible way. Your credit score is given to you based on multiple factors. These factors include length of credit history, credit utilization, history of on-time payments, amount of new accounts open, and account mix. Because there are so many factors contributing to your credit score, it is important to be as responsible as you can with building up that score. Below are some tips you can use to build the best credit score possible for yourself.
Borrow only what you can afford
It is easy to get carried away when opening new credit accounts which is why it is important to borrow only what you can afford. When your monthly statement comes in the mail it is vital that you are able to pay the entire amount in full. Without paying in full, you risk paying more in the future due to interest and your balance continues to increase.
Begin with one credit card
When you apply and get approved for your first credit card, it is important to maintain and create good credit habits right away. This means paying your bill on time and in full. By focusing on one credit card, it will be easier for you to manage your credit and there will be fewer credit inquiries. This is important because every time you apply for a credit card, whether you get approved or not, the credit card company completes a “hard pull” of your credit history which remains on your credit report for quite some time. The higher the amount of hard inquiries, the lower your credit score. So begin with one credit card and apply for more only as needed down the line.
Pay off your balance in full
As we discussed earlier, paying only a portion of your balance can increase your overall spending because you will end up owing interest on the portions not paid. This in time will increase your balance which results in high credit utilization which may lower your score. High credit utilization means you are using a high percentage or amount of your total credit line. For example, if the credit limit on your card is $1000 and you constantly have a balance of $900 that you are not paying in full, your credit utilization percentage would be 90% which doesn’t look so great on a credit report. Pay off your balance in full to reduce interest fees and to keep your credit utilization low.
Make on-time payments
Many loans and credit cards come with late fees which is why it is important to pay your bill on time. If you are unable to make your payment on time then you may be overspending and could revisit your budget. When you have multiple payments not paid in a timely manner, your information could be sent to a collection agency which may also end up on your credit report. To combat this, you can set up automatic payments if you know you will have the amount needed in your bank account to pay off your bill. You can set the automatic payment date on a specific day each month to ensure that your bill will be paid on time.
