4 Ways to Build Your Credit Score
A credit score is a huge part of your financial life. It affects your ability to borrow money, find a place to live, even a job application. Maintaining a good credit score can also have a big impact on qualifying for loans and getting a favorable interest rate with credit cards.
Not everyone has their credit score where they want it to be, but there are ways to change that â€“ and many can be easier than you think. Here are four steps to possibly give your credit score a noticeable boost:
Get your Report
Before anything, get a copy of your credit report from AnnualCreditReport.com. Everyone is entitled to one free credit report every year from the three major reporting companies: Equifax, Experian and TransUnion. Once you get it, examine it thoroughly. Look for anything that shows late payments or unpaid bills, or if something has been placed in collections.
Your actual FICO credit score â€“Â the most commonly used score â€“Â considers yourÂ payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).Â Those with scores on the higher end of the 300-850 range are considered the least risky, while anyone on the lower end are the riskiest to lenders.
If you have late payments or unpaid bills, start by paying off those items first and as fast as possible to help improve your score. At the bank, we typically instruct potential clients to have 12-18 months of no past due bills to qualify for a mortgage or car loan. If itâ€™s less than 12 months, we ask loan applicants to write a letter explaining how theyâ€™re correcting the situation.
Be on Time
Not paying bills on time can be a major detriment to your credit score, and itâ€™s a big problem for many people. The Center for Financial Services Innovationâ€™s (CFSI) U.S. Financial Health Pulse from 2018 stated that 36 percent of Americans are unable to pay all their bills on time.
Payments are considered late 30 days after the due date, and can stay on your credit report for years. Two missed payments can dock your score more than 100 points, according to Equifax.
For many people, it comes down to better money management and planning. They can afford to pay their bills, but the struggle is remembering to pay them on time. An easy solution is setting up automatic payments, which can be done through online banking. You can schedule regular payments to pay your bills each month, which can be a big step to helping restore credit.
Donâ€™t go Overboard
In short, live within your means. We suggest keeping your credit line at 30 percent or less, meaning donâ€™t use more than 30 percent of your available credit, and pay off the entire balance each month. Itâ€™s usually a good idea to shoot for an even lower percentage, if possible.
That means budgeting is a priority, which is also an issue for many people. The same CFSI study indicated that 47 percent of Americans say their spending equals or exceeds their income. The opposite may also be true. You may be able to afford everything, but youâ€™re not budgeting correctly or putting the money in the right places. Setting a budget helps assess and understand where money is going.
There are several apps to help you budget, while our online banking and mobile banking app provide easy ways to monitor account activity. You can also set up account alerts if your budget falls below a certain level, and create spending controls.
If youâ€™re taking out a loan, be sure youâ€™re comfortable with the monthly payments. Falling behind can be damaging to your score, and the further behind you get, the deeper hole you dig.
Donâ€™t let a year go by without getting your free credit report.
Itâ€™s the best way to stay informed about whatâ€™s contributing to your score. By checking your credit report every year, you can see if something is adversely affecting your credit and how you can improve in specific areas. Be diligent and examine everything. Look for anything that would show a late payment or an unpaid bill.
Also, if you find something inaccurate, the report can tell you how to dispute it. That also comes in handy if there are signs that indicate possible identity fraud.
We want to be a trusted resource for your finances and are always here to help. Stop in today or give us a call at 740.349.8633 and we can tell you more about the extensive services we offer to make banking easy for you.