How to Build Credit and Get a Good Credit Score


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Reach a good credit rating is essential if you care about your overall financial health. When you have good credit, you increase your chances of qualifying for credit cards and enjoy the best interest rates on various credit products.

But building good credit doesn’t happen overnight. Instead, you should consistently adopt responsible credit behavior, such as paying your bills on time and limiting your debt.

“Building a credit history takes time, so it’s a good idea to start early so that credit is there for you when you need it,” Rod Griffin, director of public education for Experian, told CNBC Select.

Below, CNBC Selection examines the basics of credit score and credit building tips that can help you improve your credit score overtime.

How to create credit

  • Understanding what a credit score is
  • Find out how credit scores are calculated
  • Pay your bills on time and in full
  • Maintain a low utilization rate
  • Limit new credit requests
  • Other ways to create credit

What is a credit score?

Your credit score is a three-digit number, ranging from 300 to 850, which is the result of an analysis of your credit report. Lenders use your credit score to assess your potential credit risk and your ability to repay loans. Credit score ranges vary depending on the model used (FICO vs. VantageScore) and the credit Company (Experian, Equifax and TransUnion) which pulls the score. FICO scores are used in 90% of loan decisions, so these ranges are listed below, using Experian’s estimates.

  • Very poor: 300 to 579
  • Fair: 580 to 669
  • Good: 670 to 739
  • Very good: 740 to 799
  • Excellent: 800 to 850

Take action: Check your credit score for free now

How are credit scores calculated?

Credit scores are calculated by looking at five key factors. Here are the main factors that FICO considers.

  1. Payment history (35%): If you paid off old credit accounts on time
  2. Amounts due (30%): The total amount of credit and loans you are using against your total credit limit, also known as the usage rate
  3. Length of credit history (15%): The duration of your credit
  4. New credit (10%): How often do you request and open new accounts
  5. Credit mix (10%): The variety of credit products you have available including credit cards, installment loans, finance company accounts, mortgages, and more.

Pay your bills on time and in full

“Making payments on time and keeping your balances low are the two most important factors when it comes to building credit,” says Griffin.

In fact, the payment history is the most important factor in your credit score. Your credit score determines whether you make payments on time or late, and whether you carry a month-to-month balance or pay it off in full.

It’s a good idea to pay off your bill in full each month to avoid any potential late payment fees, penalty APR and the interest charges that often result from maintaining a balance. (Learn when a credit card payment is considered late.)

“Before you open a credit account, you need to know why you are opening the account, what you are going to use it for, and how you are going to pay the balance,” Griffin says.

As a general rule, set up automatic payment for at least minimum payment, so that you can avoid unnecessary accidents. You can also schedule notifications by e-mail, SMS or push via your card issuer.

Maintain a low utilization rate

“If your balances go up over time, your credit scores will suffer. Your usage rate, or balance-to-limit ratio, is the second most important factor in scores, behind your payment history, ”says Griffin.

To calculate your usage rate, add up the total balances of all your credit cards and divide by your total credit limit on all cards.

Let’s say you have two credit cards:

  • Map A: $ 1,000 balance and $ 3,000 credit limit
  • Map B: $ 3,000 balance and $ 5,000 credit limit

Your total balance would be $ 4,000 and your total credit limit would be $ 8,000. This makes your usage 50%, which is high. You should aim for a low utilization rate of around 30% at improve your credit score.

“It’s important for consumers to remember that the lower your usage rate, the better,” says Griffin. “While any balance can cause scores to decrease, usage above 30% can cause scores to decrease faster due to a much greater likelihood of default.”

If you’re having trouble keeping track of the percentage of credit you’re using, take advantage of the various alerts issued by card issuers, such as when your balance exceeds a certain amount or when you are approaching your credit limit. If you have no problem paying off your balance in full each month, you can also call your card issuer and ask them to increase your credit limit.

Limit new credit requests

“More isn’t always better when it comes to building credit,” Griffin cautions. “Opening too many accounts at once can make you look like a lender and negatively impact your credit scores.”

Every time you apply for credit, a request appears on your credit report, whether you are approved or denied. This can temporarily lower your credit score by about five points, although it will rebound in a few months. While a single credit application won’t hurt your score, the effect can add up if you apply for multiple cards in a short period of time.

If you want to open more credit cards, consider doing so over time rather than in the same month. Although there is no too many credit cards, it is not a good idea to apply for more than one card at the same time. It’s a good idea to space them out – I opened 10 credit cards over a period of five years.

Other ways to create credit

“Remember that credit cards are not the only option for creating credit. If you have a Personal loan, a student loan, an auto loan or a mortgage, you’ll want to make sure that you manage them responsibly as well, ”says Griffin.

Here are some alternative ways to build credit.

Apply for a secure card

If you’re struggling to get approved for a credit card, there are other options. You can consider secure cards, designed for people who want build or rebuild credit. A secured card is almost the same as an unsecured card, but you are required to make a security deposit (often $ 200) in order to receive a line of credit. The amount you deposit usually becomes your credit limit.

With a secure card, such as Discover it® secure credit card, you can create credit while using the card and then switch to an unsecured card after responsible account management. Starting eight months after opening the account, Discover will automatically examine your credit card account to see if it can transfer you to an unsecured line of credit and return your deposit to you. This takes the guesswork out of when you will qualify for an unsecured credit card.

Become an authorized user

Another option is to ask a family member or close friend to add you as a Authorized user on their credit card account. This is a relatively low-risk way to build credit since you are not responsible for bill payments and can just use someone else’s credit. Before being added as an authorized user, make sure the account owner has good credit.

Get credit to pay eligible bills

If you want to avoid credit cards altogether, you have no shortage of options. You can get credit to pay monthly utility, cellphone, and streaming service bills on time with Experian Boost ™, which is free.

“Two in three people see an instant increase in their credit score with an average increase of more than 10 points,” Griffin says. “As you develop good credit habits, you will be rewarded because your credit score responds positively.”

For pricing and fees for the Discover it® Secure Credit Card, click here.

Editorial note: The opinions, analyzes, criticisms or recommendations expressed in this article are those of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.

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