How to Build a Good Credit Score: Proven Tips and Tricks

Bad credit can prevent you from renting an apartment, buying a car, or even qualifying for a new credit card. However, not all is lost! While there is no secret formula on how to build a good credit score, there are some proven tips and tricks that can help to set you on the road to financial success and healthy credit history.

Key Points:

• A bad credit score can negatively affect your ability to get a personal loan, a mortgage, a line of credit, and more.
• Increasing your credit score is possible, but it takes time. Patience and commitment are key!
• Stay prudent with paying your bills on time, keeping credit balances low, and limiting the number of applications for new credit.
• Other ways of improving one’s credit include reporting rent and utility payments to credit bureaus, applying for a credit-building card or loan, and creating a detailed financial plan to pay off the debt.

Ideas to Build a Good Credit Score

Every financial decision you ever made has affected your credit score, thus affecting your ability to get a loan, qualify for a credit card, get hired for a new job, or even receive basic services and utilities. If your credit history is subpar, know that it is never too late to learn how to building a good credit score:

• Make all the payments on time. Never miss a bill or credit card payment. If you have financial difficulties, reach out to the lender immediately to discuss your options.
• Limit your credit usage. Keep your credit utilization ratio as low as possible. Limit your credit usage to below 30% of the total credit limit.
• Minimize the number of credit applications. Every credit application will have a negative effect on your credit score. Do not apply for new credit unless absolutely necessary; if you do - limit all the applications to a two-week period.
• Let your accounts age. The length of your overall credit history is a key factor in determining your credit score. Never close out old accounts.
• Use different types of credit. Aim to have a good mix of different types of credit. This can include a line of credit, a credit card, a mortgage, and a car loan.

Building Good Credit with No Credit History

When it comes to building good credit with no credit history, it is best to start early - and start small. Apply for a single credit card as early as possible and spend the time learning to make responsible financial decisions while using available credit.

If you are having trouble qualifying for a regular credit card, you have a few alternative options to keep in mind:

• Become an authorized user on a credit card. Ask a friend or a family member about becoming an authorized user on one of their accounts. This way, credit activity on the shared account will be reported in your name as well.
• Apply for a credit-builder loan. With this type of loan, you can take on a small amount of debt to demonstrate that you are a reliable borrower.
• Get a co-signer on an installment loan. If you have trouble qualifying for a personal loan, getting a co-signer may help. Make sure to submit loan payments on time to improve your credit score.
• Open a secured credit card. If you have little to no credit history, you might still be able to qualify for a secured credit card. With this option, you will be able to use your existing money to establish a good credit history. For example, if you contribute $400 to the card, your credit limit will be $400.
• Make use of rent-reporting services. Such services can report your on-time rent payments to credit bureaus, thus boosting your credit score.

Rebuilding a Good Credit Score

Reaching your credit limit, being late on bills and credit card payments, or applying for too many loans over a short period of time are only some of the factors that could damage one’s credit score. If your credit score has dropped due to a financial mishap, know that you can still rebuild it over time with the following steps:

• Create a plan. Develop a time frame and budget for paying off any outstanding debts. Contact all creditors and set up reasonable payment plans.
• Consider balance transfers or a debt consolidation loan. If possible, transfer your debt to a single loan or credit card with a lower interest rate. This way, you will be able to save money and pay off debts sooner.
• Apply for a credit-building credit card. Applicants with poor credit can qualify for a credit-building card. Use this card reasonably and pay off the balance every month to continue increasing your credit score.
• Report rent and utilities to the credit bureaus. Reporting timely rent and utilities payments can help to noticeably boost your credit score.
• Examine your credit report for errors. Get an annual credit report from AnnualCreditReport.com and carefully examine it for any errors or fraudulent activity. Reach out to the creditor directly to get any issues fixed immediately.

Needless to say, while taking the above steps to quickly rebuild your credit, you must continue paying bills on time, using less than 30% of available credit, and limiting new credit applications. In addition, remember not to close out any old credit accounts, so that you can reap the maximum benefits of a good credit score as quickly as possible.

How to Maintain a Good Credit Score

Maintaining a good credit score is easy, given that you follow the same healthy financial practices that helped you achieve a good score in the first place. Continue to pay your bills on time, keep your credit utilization ratio low, and avoid applying for too much credit over a short period of time.

In addition, having an emergency fund can help you maintain good credit even during difficult financial situations. It is recommended to have at least a 15% cushion of available credit in case of an emergency. Alternatively, you can aim to have emergency savings amounting to three to six months’ living expenses. This way, should you lose a job or be faced with a big unexpected expense, you won’t have to turn to your credit for funds.

“Having an emergency fund can help you maintain good credit even during difficult financial situations.”

Additional Actions to Building Good Credit Score 

When it comes to building a good credit score, creating a reasonable plan and sticking with it is of the utmost importance. Your credit score won’t magically rise overnight, - instead, it will slowly but steadily increase in response to your responsible financial decisions.

Here are a few additional actions you can take to speed up the process:

• Consider working with a credit counseling agency. A credit counseling agency can provide you with extra support and guidance in paying off your debt and building good credit. Make sure to do your research to find the best services, fees, and plans.
• Plan ahead. Establish an emergency fund and plan ahead for any major purchases. While using your credit to finance an expensive purchase may seem enticing, make sure that you will be able to pay off the debt on time.
• Avoid financial association with others. If you have a joint bank account or a joint loan, another person’s poor credit rating can negatively affect your own. Be careful when asked to create a joint account or act as a co-signer for another person’s loan.

How Long Does It Take To Build Good Credit?

The time it takes to create good credit depends on several factors, including the individual's starting credit score, credit use, payment history, and credit types used. In general, getting good credit is a slow process that requires you to keep doing things that are good for your credit over time.

Usually, it takes at least six months of good credit habits, like making payments on time and not using too much of your credit, for your credit score to increase. An excellent credit score, on the other hand, can take several years of good credit habits.

It's important to remember that getting good credit is a process, not a goal. Keeping good credit requires constant work and attention to credit management, but the benefits of good credit, like lower interest rates and better loan terms, make the time and effort well worth it.

Final Word

If you are looking for ways of how to build a good credit score, remember that every financial choice you make will affect your credit rating. Responsible credit management and reasonable decisions will pave the road to your financial success and help you achieve a higher credit score over time. Don’t forget to pay your bills on time and in full, be mindful when using your credit, and create a thoughtful financial plan for the future.