Your credit score is a key indicator of your financial health. But a lot of young people don’t know their credit score. Those that do know their score may feel surprised to learn it’s not as high as they thought. No matter which camp you’re in, building your credit is important and possible.
Your credit score plays a significant role in your ability to take out financing to buy a house, invest in real estate, or buy a new car. Taking care of your credit score today can help ensure that you can take care of yourself financially tomorrow.
Thankfully, improving credit isn’t particularly difficult. We’ve got three simple tricks (plus a bonus) that can help you build your credit score.
These tips are brought to you by Cleo, a credit-building app that’s designed to help you build credit without leading you deep into debt.
If you’re looking for an easy way to build your credit history,
check out Cleo here to get started >>
What Is A Credit Score?
A credit score is a numeric representation of your creditworthiness according to banks. Most people talk about their credit score as if there is only one credit score. In reality, there are hundreds of different credit scores that are all measured slightly differently. While you have hundreds of credit scores, all credit scores tend to move in the same direction. When one score is good, another credit score is likely to be good.
Credit scores all rely on information collected by three major credit reporting agencies, Experian, Equifax, and TransUnion. You are entitled to a free annual credit report from all three agencies, so make sure to request that if you’re not sure where your credit stands. You can also use various apps and tools (including our sponsor Cleo) to check your credit score for free.
Once you know where your credit score stands today, it’s time to start boosting your score with these simple tricks.
1. Make On-Time Payments Every Month
Your payment history is by far the most important part of your credit score. Each time you make an on-time payment, your credit score goes up a little bit. When you pay late, your credit score takes a hit. If you can do only one thing to boost your credit, pay all your credit accounts on time each month.
Many people start building credit by opening a credit card. If you’ve struggled with credit cards, or can’t seem to qualify for a credit card, consider starting with an alternative credit-building tool like Cleo.
The Credit Builder Card* is a secured credit card that’s limit is based on the security deposit you put down ($1 minimum deposit). Cleo recommends using the card on everyday spends–or even better recurring bills. At the end of the month, you can either autopay the balance or use your security deposit. Cleo reports on-time payments to the three major credit bureaus.
2. Keep Your Credit Utilization Low
Even if you have a modest salary, credit card companies might issue you a card with a large credit limit. Counterintuitively, credit card companies issue large credit limits, so that you can prove that you don’t need that much credit. Banks love seeing unused credit.
If you have a credit card with a $2,000 credit limit, you never want to spend more than $600 on the card in a month. Even if you can afford to pay off $1,200 in credit card spending every month, banks want to see your credit utilization lower than 30% at all times. It’s even better if you can keep your credit utilization below 10% of your total credit limit.
It’s fairly common to max out credit cards when you first start using them. You can lower your credit card utilization by paying off your credit cards. If you’re working to repay your existing debt, Cleo can help you continue to build your credit without opening new credit cards.
The Credit Builder Card* limit is based on how much you put down for your security deposit ($1 minimum deposit). If you can spare $200, then your credit limit will be $200 to start. But Cleo does its customers a solid. It doesn’t report available credit to the credit bureaus. It will report outstanding payments, but it doesn’t say your credit limit is $200.
The relatively low amounts owed on Cleo simply show you can use credit effectively and build your credit.
3. Give Your Score Some Time
One of the biggest credit mistakes we see young people make is trying to rush perfection. It takes time to build a great credit score. Attempting to open tons of credit products to boost your available credit will temporarily ding your credit score.
Those short-term reductions in your credit score won’t be a big deal when your credit score hovers in the low 800s. But when you’re building or rebuilding credit, your credit score may not be able to absorb the small hit from a credit inquiry.
It’s also common to make on-time payments for two or three months and see minimal improvement in your credit score. Those glacial-paced changes lead many people to throw in the towel too early. When it comes to your credit score, everything is fixable, even if you’ve declared bankruptcy or had a credit card go into delinquent status.
The simple trick is to stick with what works for as long as it takes to see your credit score improve. Most people who make on-time payments for a year or more will see marked improvements in their credit scores. And a great credit score opens up a world of possibilities for you.
Once your credit score is improved, you may qualify to use rewards credit cards, take out a mortgage to buy a house, or rent an apartment on your own.
Bonus Tip: You Don’t Have To Pay Interest To Build Credit
One of the nastiest credit myths is that you have to pay interest to build your credit. You don’t. If you use a credit card, you can pay the card in full each month. The credit card company will still report your monthly balance, and your credit will still grow even though you never pay a cent in interest.
When you know you don’t have to pay interest, you can avoid ending up deep in high-interest credit card debt. Use the credit cards, but don’t let the credit card companies use you as a source of profits.
You can also use an alternative credit-building tool like the Credit Builder Card*. This secured card* establishes a credit limit based on the security deposit you provide ($1 minimum deposit). At the end of each month, you can either auto pay your balance or use your security deposit to pay off the card. So it’s really hard to miss a payment or go into debt. Even better, Cleo never charges interest to its customers.
Start Building Your Credit Today
Building credit isn’t hard, but it takes a bit of time, the right tools, and a touch of self-discipline. While it may take a year or two to achieve a good or excellent credit score, you can start building that score today. Make sure that you’re using the right tools, making on-time payments every month, and keeping your utilization low on your credit cards. With persistent effort, you can build a great credit score without paying interest.
Ready to get started? Check out Cleo here and start building your credit today >>
* The Credit Builder Card is issued by WebBank, Member FDIC pursuant to a license from Visa USA Inc. Access to the Card is subject to approval.
Editor: Colin Graves
Reviewed by: Robert Farrington
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