Although they don’t teach building credit in grade school or college, it’s a necessary part of life. Your credit worthiness will determine how much you can borrow when you want to buy a car or house. It will also determine how much interest you may be required to pay for any borrowed funds.
Your credit report and credit score show how credit worthy you are. Learn more about credit reports and scores in the Finance 101: Credit Reports and Scores article. Today, the CGS Team is sharing 6 things to keep in the back of your mind when trying to build credit. Whether you are just starting out with building credit, or looking to repair, these need-to-know items will help you along the way.
#1: To save money, a good credit score is needed.
Credit scores range from 300-850, with 300 being the lowest score someone can have and 800 being the highest. There are certain ranges your score can fall in: poor, fair, good, and excellent. To start saving money and get the lowest interest rates, you need at least a “good” score, which can start at 720 and go to 750.
#2: When checking your credit score, check all 3 at the same time.
A person’s credit is reported to three different bureaus: Experian, Equifax, and TransUnion. The information reported to these bureaus should typically be the same, however each bureau’s data can vary. When monitoring your credit report and scores, it’s important to check all three at the same time. Since scores can vary in a quick timeframe, the most accurate account will be from checking all of them at the same time.
#3: You are entitled to one free credit report each year.
Thanks to the Fair Credit Reporting Act (FCRA), consumers are entitled to one free credit report from each of the three bureaus. Utilize the free pull to see how your credit has changed from year to year. Visit www.annualcreditreport.com for your free pull. Keep in mind, this doesn’t mean you get to see your score for free. Credit scores typically require purchase.
#4: There are multiple credit scoring methods, but FICO is the most common.
Did you know that there are multiple credit scoring methods? VantageScore is another popular method for calculating credit scores. You don’t need to worry about different scoring methods just yet. According to Experian, FICO scoring is used in nearly 90% of credit decisions in the U.S.
#5: Negative items can stay on your report for a long time.
The typical lifespan for a negative credit items to stay on your credit report is 7 years. Late payments, collection accounts, and foreclosures are an example of what tends to last 7 years. Unpaid tax liens don’t have an end date, and Chapter 7 bankruptcy can stay up to 10 years. If any of these items are on your report, stay positive. Good payment history and low balances can help raise your score, even with negative items.
#6: The quickest way to raise your score is to pay your bills on time.
Since payment history accounts for 35% of your score (the largest category of them all), the quickest way to raise your score is to always pay your bills on time. Ensuring that at least the minimum required payment is paid each month, on time, will make a big difference.
Building credit can seem like a lifetime of good habits; the sooner you start, the better your score will be. Your score can change within a month’s time, so don’t get discouraged. Want some more credit boosting tips? Check out the article 7 Tips to Help Boost Your Credit Score. What credit habits have you developed over the years? What has made the biggest difference in boosting your score? Leave a comment below to share!