Building credit can be hard for people with a troubled financial history, or virtually no financial history to speak of. Working adults and students are both groups who often have trouble getting loans, participating in certain offers, and finding houses simply because they have either a bad credit score (Read: Low Credit Score? 7 Ways to Get an Apartment With Bad Credit).
Building credit when you have no previous credit history is also difficult. It can be hard to start from scratch, but at least it means you can begin with a clean slate instead of having to fix past credit mistakes.
There are different ways you can improve your credit score, but it’s good to remember that all of these methods take time and patience. If you use all of them, you might be able to speed up the process, but don’t rush yourself.
The idea is to appear more financially stable to lending institutions. Stability involves equal parts patience and ability.
To explain and expand on the concept of stability, here are eight easy steps to increase your credit scores.
- Get (and Pay Off) Credit Cards. One of the easiest ways to build your credit score is to acquire a credit card and then keep it paid off. Every time that you have a bill to pay, pay it with your credit card. The more purchases that you make with your credit card, the more financial footprints you leave. Obviously just buying things with your credit card isn’t going to be enough; you also need to pay off your balance every single time. Consistent payments of your credit card balance are a signal to lenders that you are reliable.
- Pay Utilities and Other Bills on Time. As mentioned in step #1, you need to be seen as a reliable individual. That includes paying your bills whenever you get them. If you have bills that can be paid with credit, and you also pay off your credit balance, then that would be a good move. With some bills, like utilities, cash or check is your best option. Remember that landlords and property owners also do credit reviews these days, so it’s a good idea to pay your rent on time, or even ahead of time. The more “on the ball” you are with your bills, the easier it will be for you to build your credit.
- Establish a Strong Credit History. Steps one and two can lead to step three. Once you have acquired one or two credit cards, and are now better about paying your bills, you may need to simply work and wait for the magic to happen. As you continue to build up a stronger reputation with credit score agencies, lenders will take notice. The important thing with this step is continuity. You want to maintain the identity that you are building as a responsible spender who is consistent with repayment and interested in new credit and lending opportunities. This will lead you to the fourth step.
- Raise Your Limit. Now that you’re on the path toward having a background that credit card companies can trust, you may be eligible to raise your credit limit. This could also work for individuals that already have a decent credit score, but want to raise it even higher. The higher that you can raise the limit of your credit, the easier it will be to build an even stronger credit score.
- Don’t Max Your Cards. While the goal may be to raise your credit limit so that you have more credit available to utilize, you don’t want to go crazy with any new limits either. Maxing out your cards can be a sign to credit companies that you are impulsive, or even reckless. Even if you consistently repay credit cards once they are maxed out, you may not be able to go much further unless you can reign in your spending habits. Choose which purchases to make with credit and which to make with cash. As your limit goes up, you can increase the amount of credit you spend, but total credit spent should be no higher than 50% of what your actual maximum line allows.
- Vary Your Credit. Credit cards are a swift and easy way to improve your credit, but as your score improves, so will your opportunities with other forms of credit. Car loans and home mortgages, along with smaller loans that you can take out, are all different forms of credit-establishing possibilities. If you want to purchase a new car, for example, then you can take out an auto loan for it, and then use that as another bill to consistently pay to further raise your score.
- Don’t Panic. On your road to a better credit score, you may find yourself in situations where you are beginning to fall behind on your payments. A change in employment, or a loss of it, along with medical emergencies and other situations can easily lead to an inability to make all of your payments on time as planned. The best way to avoid this is to plan ahead with a buffer savings account that covers at least two months of payments regarding your obligations. Average your monthly bill, and then put away a little money every month until you reach that safety buffer.
- Enjoy Your New Credit Wisely. Remember that credit scores are hard to increase, but very easy to decrease. What took you a few years to build up can go back down to where it started in a matter of months if you do not maintain it. Once you have reached your credit goal, continue to make payments on your cards and other loans. You may be able to cut back on how much you buy with credit, but maintaining some presence is the best way to ensure that you keep your hard earned score.
With these eight steps, you should find yourself on the road to having the credit score that you need for a new home, loans for college, or that new yacht you have always wanted. Keep in mind that credit is the simple assurance that you will be able to repay what you are lent, plus interest. Show lenders that you are good for a little and soon enough they’ll think that you’re good for a lot more.