Build a High Credit Score and Keep it There

480. 550. 640. 720. You know your number. Maybe you even use a credit score manager to keep an eye on your credit score.

Now you are thinking about trying to improve it.

After all, a good credit score opens up a world of opportunities for you.

Lower interest rates on loans. Higher chances of approval on rental agreements. Savings on utilities, auto insurance premiums, and even cell phone contracts.

According to Experian, the main factors that affect your credit score include:

• Payment history
• Credit utilization
• Length of credit history
• Types of credit accounts
• Recent credit activity

FICO and VantageScore are the two companies you hear about most often when it comes to credit scores.

While their scoring models are similar, each company weighs factors differently to determine credit scores. They also alter their credit scoring models over time to help better predict credit risk.

FICO 10 is scheduled to be released in the summer of 2020 and may affect the credit scores of many consumers.

Your score may go down if you have late payments, high levels of credit usage, and personal loans when lenders start using this model.

Those who use only a small percentage of available credit and consistently pay on time may see modest increases in their credit scores with the changes in FICO scoring.

Both models produce a three-digit credit score ranging from 300 to 850.

Experian reports that a FICO score between 300-579 is considered very poor (or very high risk), 580-669 is fair, 670-739 is good, 740-499 is very good, 800-850 is exceptional (or very low risk).

According to TransUnion, your credit score is calculated from your:

• Payment history 35%
• What you owe lenders 30%
• Length of credit history 15%
• Types of credit accounts 10%
• Recent credit accounts 10%

These values are then combined into a credit score, ranging from 300 to 850.

No matter where you are on the credit score spectrum—no credit or bad credit all the way to a top-notch score—there are steps you can take to build your credit score and maintain an excellent rating long-term.

How to Build Your Credit Score from Scratch?

If you have no credit or bad credit, you have some work to do to establish or repair your credit.

People without any credit history often feel stuck because many credit card companies require at least a fair or good credit score to open a card. However, using any of these strategies will help you establish credit.

• Become an authorized user. If a family member you trust already has strong credit, you could ask to become an authorized user on their account. Basically, this means you get a credit card in your name linked to the primary account. Some people dislike the idea of using credit cards. That’s fine. Authorized users never have to make a purchase to benefit. You don’t even have to keep the card in your possession; some authorized users opt to have the primary cardholder keep the card for them. Merely being added to the account allows you to start building your credit history.
• Opt for a secured card. When you apply for a secured card, you will put a cash deposit upfront. Think of it as a security deposit to prove that you will be able to make payments when your statement comes in the mail. The secret here is to choose a card with the least amount of fees possible. You also want to make sure the card you choose reports your activity to the different credit bureaus, so you keep building your credit.
• Open a store card. Department stores and gas stations are much more likely to approve individuals with low or no credit. Your credit limit will likely only be a few hundred dollars, but you will still be growing your credit history. After making a series of on-time payments, you will see your credit score start to increase, opening up other credit card options for you.

Using Credit Cards to Build Your Credit Score

Do you already have fair or good credit? Then you want to keep using credit cards to your advantage. Think of your bills as a paper trail that proves your creditworthiness.

The more evidence you collect to show your responsible borrowing habits, the more your credit score will grow. When you want to build your credit score with credit cards, make sure you do these things:

• Treat it like cash. If you are purchasing with a credit card, ask yourself if you could buy it with cash instead. This check-in with yourself will keep your balance reasonable.
• Keep credit utilization low and pay balances in full. Aim to only use a credit card if you can pay your whole balance. Not only is this good for your budget and your savings goals, but it also helps with your credit score. The primary goal is to have low credit utilization, which means that when you total up the amount of credit you are using versus the overall available credit you can access, the lower the ratio, the better. Some people even prefer to make payments after each credit card transaction to make sure their balance is always paid.
• Be on time. The most significant factor in your credit score is your payment history. Meaning you need to pay all of your bills on time. If you can’t pay your balance in full, you need to pay the minimum at least. But if you’re using the “treat it like cash” tip, you’re ready to pay it off in full, right? Awesome!

Moving Your Credit Score from Good to Excellent

You have a good credit score. Take a victory lap and then roll up your sleeves. There’s more work to do.

An excellent credit score gives you access to the best (read: lowest) interest rates and can also get you access to the credit cards with the most generous rewards, especially if you are interested in travel hacking.

• Watch your applications. When companies make hard inquiries into your credit, it can impact your credit score, especially if the queries are made close together. If you are trying out travel hacking or considering applying for multiple credit cards for another reason, you want to keep this in mind.
• Ask for higher credit limits. Often, you can request an increase with the click of a button on your account dashboard. The trick here is to accept the increase without increasing your spending. You don’t want to incur debt you cannot pay. You also want to be mindful of your credit utilization ratio.
• Check your credit. Using a credit score manager can be really helpful to keep an eye on your credit activity. And reviewing your credit report will allow you to dispute any errors you find right away.

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Final Thoughts on Building Your Credit Score

Whether it gives you access to the most competitive interest rates when you apply for a mortgage or drops your car insurance premium, a healthy credit score is an essential piece of the financial puzzle for many people.

Making sure you know how to establish credit with secured cards or store cards is an important starting point.

Once your credit is established, use these strategies to build your credit score further and keep it climbing.

Article written by Penny