8 Ways to Build and Rebuild Your Credit

Are you a college student or a young professional looking to build your credit? Or maybe you've made a few mistakes along the way with your credit, and now you're trying to figure out how to repair it? Everybody's financial story is different. Whether you established credit many years ago, or you're just starting, a good credit score is important to your financial well-being.  

Your credit score is a reflection of how you've been responsible for handling your finances. Many lenders and creditors use your credit score to determine if they would extend credit for products and services you want - car loans, mortgages, credit cards, etc. Building or repairing your credit doesn't happen overnight. With patience, consistency, and a plan, you can improve your credit score over time.  

Here are eight ways to start building and rebuilding your credit. 

1. Review your credit report. 

To start the process of building or rebuilding your credit, you have to review your credit report. Checking your credit report gives you a clear picture of your credit history. It allows you to see accounts (past and present) that have been opened in your name. It also allows you to see mistakes that may appear on your credit report. If you find any errors in your report, you can dispute them directly with the credit bureau. Correcting errors could help improve your credit score. You can get a free copy of your credit report once a year from the major credit bureaus.   

2. Pay your bills on time. 

The most significant factor in determining your credit score is your payment history. The payment history makes up 35% of your credit score. Make sure you pay all your bills on time, because missed or late payments could lower your credit score drastically. To avoid missed payments or late fees, set payment reminders, alerts, or have the payment automatically deducted before or on its due date.

3. Get a secured credit card or loan. 

Another way to build or repair your credit is by using a secured credit card or secured loan. A secured credit card and secured loan allow you to use your own money as collateral for the loan. The credit limit on these accounts is generally the same amount as the funds used as collateral. The secured credit card can be used to make purchases just like you would with a regular credit card.  

Making your payments on time creates a positive payment and credit history. However, exceeding your credit limit on these accounts or making late or missed payments could damage your credit history.    

4. Use your credit card (wisely). 

Using your credit card to make purchases can help build your credit history, but you have to be smart about it. You can use your credit card to make small purchases such as gas and food, and pay it off each month. To avoid lowering your credit score, aim to keep your credit utilization rate below 30%. If you've maxed out your credit card, add more to the monthly payments to pay down the balance quicker. Most importantly, make your monthly payments on time, every time.   

5. Ask for higher credit limits. 

Payment history and credit utilization are two significant components of your credit score. Credit utilization is the amount of credit you've used compared to your available credit limit. By increasing your credit limit and keeping your balance the same or reducing it, you could potentially improve your credit score and lower your overall credit utilization.  

Most financial experts recommend keeping your credit utilization rate below 30%. If you're using more than 30% of your credit utilization, it could negatively impact your credit score. Also, if your income has increased recently, you have a good chance of getting a higher credit limit.   

6. Don't apply for multiple credit cards. 

One credit card may be enough while you're starting to establish your credit. Applying for multiple cards within a short period may hurt your credit score. Each time a lender looks at your credit, it could count as an inquiry and too many inquiries could lower your credit score.  

If you currently have multiple credit cards, limit or stop using them to prevent unwanted debt or more debt than you can handle. Although you're limiting the usage of the cards, you'll want to keep them open because this establishes your payment history. The longer you keep your credit card accounts open, the better it will be for your credit score.  

7. Automate your payments.

If paying your bills on time is a challenge for you, automate your payments so it's one less thing you'll have to worry about. Consider setting up an automatic payment to ensure your payments are made on time and avoid unnecessary late payment fees.   

8. Become an authorized cardholder. 

One way to establish your credit history is to have someone you know and trust be willing to make you an authorized user of one of their credit card accounts. Before becoming an authorized user, you'll want to make sure the other account holder manages their credit responsibly by paying their bills on time. As an authorized cardholder, you'll receive a credit card in your name, but you may not have the same privileges as the account holder.   
 

Whether you're new to this or you've been at it for a while, building and rebuilding credit doesn't magically happen overnight; it takes time. You have to be willing to take the necessary steps to lead you on the right path to credit wellness.