A good credit history has never been as important as it is today, especially when applying for a loan like a mortgage.
Different companies and institutions measure credit ratings based on different variables, so it’s not an exact science. However, there are known practises that definitely do help build your credit rating.
Steps you can take to build a good credit history
1] Pay your bills on time
1] Pay your bills on time
Make sure you pay your bills on time, all the time. Your credit rating can easily be tarnished by a single missed payment, so make sure you keep up to date.
2] Savings account
Savings accounts look good on your credit report because they signify stability. Opening savings accounts are one of the few things you can do at a young age to start building your financial history.
3] Build a history of borrowing and repaying
This is said to be the best way to build your credit rating – by taking credit, and then repaying on time, every time. This will show the lender that you’re responsible enough to borrow money and pay it back. A good way to do this is by using credit cards.
4] Don’t max out your credit cards
Don’t max out any of your credit cards, or even get close. Keeping your credit use to less than 30% of your credit limits (10% is better) will help you get the best possible credit scores.
5] Use store cards
Department stores that issue charge cards typically use finance companies to handle the transactions. These cards don’t do as much for your credit scores as a bank card (Visa, MasterCard, Discover, etc.), but they’re usually easier to get and do add some value to your scoring.
One or two of these cards is enough, don’t go overboard.
6] Get an installment loan
To get the best credit scores, you need a mix of different credit types, including revolving accounts.
Once you’ve had and used credit cards responsibly for a year or so, it may be worth applying for a small installment loan from your bank or building society. Keeping the duration short, about a year or two, will help build credit while limiting the amount of interest you pay.
Recovering from bad credit
If you have a bad credit rating, your life is not over. It is possible to repair bad credit ratings, but it takes time and organization. Here are a few tips for those in the red-zone:
1] Be patient
If you’re in the red-zone, you have to be patient. Building up credit takes time even if you don’t have bad credit, so you have to be especially patient if you have bad credit.
2] Be organized
A lot of the times people have bad credit rating not because they lack money, but because they aren’t organized. A few missed payments due to forgetfulness is all it takes.
Here are steps you can take to be more organised:
- Keep a diary
- Schedule daily reminders of bills that need paying
- Setup direct debits or standing orders to pay bills
- Get online banking so you can monitor your accounts and make payments quickly and easily
3] Pay all your existing bills on time
It’s more important than ever that you keep on top of your bills by making all payments on time. Try to clear as much debt as possible as quickly as possible. But make sure you don’t go out of your way clearing one debt, only to fall short the following month on another debt- it’s better to stick to paying what you can afford in that situation. If you keep on top of things for a year or so, it will not go unnoticed.
4] Get rid of your credit cards
Try to reduce the amount of credit cards you have; try to stick with one card. Contact your creditors and cancel the cards you don’t need.
5] Secured Credit Card
In most cases people with bad credit won’t be able to get a regular credit card. However, they will be applicable for a secured credit card, and that will help rebuild credit.
Disclaimer: I'm just a landlord blogger; I'm 100% not qualified to give legal or financial advice. I'm a doofus. Any information I share is my unqualified opinion, and should never be construed as professional legal or financial advice. You should definitely get advice from a qualified professional for any legal or financial matters. For more information, please read my full disclaimer.