Building Credit: How to Pull it Off

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Need to boost your credit score? Here’s how.

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What can a higher credit score do for you? A lot of things, actually.

The higher your credit, the more likely you'll get approved for a:

  • Mortgage
  • Apartment lease
  • Auto loan
  • Personal loan
  • Credit card

Furthermore, in some cases, your credit history could spell the difference between getting a job or not. If your credit could use work -- which may be the case if you're in a lot of debt -- there are several steps you can take to improve it. Here are a few important starting points.

  1. Pay all bills on time

Of the many factors that go into calculating a credit score, your payment history carries the most weight. Your payment history shows how consistently you pay your bills on time, and being late even a few times can drop your score.

If you have outstanding debt, it's imperative that you submit every payment by its due date. Staying current on your obligations helps raise your score, even if you can't get your debt paid off for a while.

But it's not just your debt payments you need to stay current on. Pay your rent, utilities, and medical bills on time, as well as any other expenses that could go into collections if you ignore them or fall behind.

  1. Remove errors from your credit reports

You have three different credit reports -- one from each major reporting bureau (Experian, Equifax, and TransUnion). But those credit reports may not be consistent, and may not all be correct.

Credit report errors aren't uncommon. It can happen that someone with the same name as you racked up a debt, never paid it off, and somehow, that debt got associated with your credit history. Or you might have an unpaid debt that got settled years ago, yet it's still showing up as delinquent on your credit report.

That's why it's important to check your credit report for errors and resolve any you find. You may need to work with each credit bureau individually to get mistakes corrected. Usually, if you report an error, you'll receive direction to remedy the problem. In some cases, you may work with the credit bureau directly, but in other cases, you may need to reach out to the original creditor. You're entitled to at least one free copy of your credit report per year from each bureau, so take advantage of that.

  1. Pay off existing credit card debt

The average U.S. consumer had $6,271 in revolving credit card debt as of 2019. If your credit card balances are in that ballpark, they could be destroying your credit score.

A big factor in calculating credit scores is utilization, or the extent to which you're using your available credit. Your utilization ratio needs to be 30% or below to improve your credit score. If you owe close to $6,300 on your credit cards and your total credit limit is $12,000, that's a utilization ratio of over 50% -- not good.

To improve that ratio, start by making more than just your minimum credit card payments. More importantly, when you come into extra cash, make lump-sum payments to knock out your debt sooner.

Consolidating your credit card debt could make it a lot more affordable to pay off. To that end, look into a balance transfer. With a balance transfer, you move your existing balances onto a single credit card with a lower interest rate. You then pay that single card off month by month. Some balance transfer credit cards even come with a 0% introductory APR for a specified time.

You can also look at consolidating your debt via a personal loan. With a personal loan, you can borrow money for any reason. In this case, you'd borrow enough to pay off your credit card balances, then repay your personal loan in installments. A personal loan generally charges less interest than a credit card (the exception is a 0% introductory rate card, but those intro rates only last for so long). It also won't count toward your credit utilization ratio, because it's an installment loan, not a revolving credit loan.

  1. Piggyback on other people's good credit

Another factor in calculating a credit score is length of credit history. In this regard, being younger can work against you. If you've only been working and paying bills for a handful of years, you won't have the same credit history as someone with accounts in good standing for a decade or longer.

On the other hand, you can ask to be an authorized user on a family member's credit card that's been open for many years. That way, you benefit from that person's long-standing credit history.

Don't ignore your credit score

You never know when having strong credit will come in handy -- or be a lifeline. If your credit needs work -- usually because you've racked up a lot of debt -- take steps to boost it while whittling down your balances. It may take time, but it's more than worth the effort.