Simple Ways to Build Good Credit

By April Lewis-Parks

Having good credit is one of the cornerstones of maintaining a solid financial profile.

Your credit standing will be used in part to determine your eligibility for loans and credit lines, tenancy, employment prospects and depending on the state you live in, auto insurance rates.

So whether you’re trying to establish credit for the first time or repair a broken credit score, there are a number of steps you can take to get your score in tip-top condition.

Check your credit report
You may think it is okay to bypass this step if you’ve never had a loan or credit card in your name. However, many people are surprised to find that they do in fact have a credit report, whether due to a student loan, a retail credit card or, in worst-case scenarios, an act of identity theft. Checking your report can highlight the areas of your credit that need work. Perhaps your payment history is a little spotty and you need to do a better job of making payments on time. Or you may find that you have run up large balances that are now impacting your score. Whatever the case, your report can provide insight into negative credit habits.

Know how to manage your accounts
It’s also important that you examine the way in which you are managing your accounts to ensure your habits are working in your favor, rather than your detriment. In addition to paying your balances on time and keeping your credit limits at or below 30 percent of your credit limit, consider how often you apply for new credit lines. It’s easy to get suckered into applying for a credit card at your favorite retail outlet to save 15 percent on your purchase, but each time you apply for credit – even retail cards – it creates an inquiry on your file. Too many inquiries in a short period of time can harm your rating, so avoid multiple applications.

If you are seeking credit for the first time, it can be helpful to start with a credit card that offers a low spending limit and a fixed interest rate. Doing so can help you avoid going into debt as you navigate your first credit experience.

Mix it up
A healthy mixture of credit types – such as a revolving credit line and an installment loan – can lend more credibility to your file and demonstrate to lenders that you can manage all your accounts wisely. So don’t be afraid to take on an auto loan or mortgage for fear that it will harm your credit standing.