Your credit report represents how well you manage your financial responsibilities. The good news is that your negative information drops off over time but the positive information remains. Building a strong and consistent history of responsibly using credit is the foundation to building a great credit profile. Although it’s relatively easy to gain access to new credit such as credit cards, there are many best practices to use and common traps to avoid. Here are a few easy tips for effectively building your credit history.
Applying for new credit
- Don’t apply every time you see an offer. Getting too much credit too quickly can hurt your credit profile.
- Don’t build your credit profile through trial and error. Consult an expert such as a credit coach to develop a plan based on your short- and long-term needs.
- Print clearly when applying for credit. If your application information is entered inaccurately it can create variations of reported information on your credit report.
- Consistently use your complete name without any variations. Providing complete, accurate and consistent identification on your credit applications helps set up your credit history correctly from the beginning. It also minimizes the chance that your credit file will be incomplete or mixed with another consumer’s file.
Once you have credit
Pay your bills on time. Most lenders look at the most recent information on a report. So if you’ve paid your accounts on time for the last two to three years, the lender may weigh that more heavily than a series of late payments from five years ago.
- Set up a budget, and follow it. This is so much easier said than done! A credit coach can help provide you guidance on creating and managing a budget based on current income and debt as well as your short- and long-term credit needs. In the age of self-help and empowerment, managing your finances should top your list. The key is not to over-extend yourself.
- Develop and follow a plan for the type of credit you have, how you use it, and the type of credit you may need in the near future.
Review your credit report periodically throughout each year.
At least 60 to 90 days before making a major purchase (such as a home, car or large household goods) you should prepare by reviewing your credit profile to help ensure it is optimized.
Continual evaluation of your credit profile is necessary to ensure you are not paying unnecessary interest expenses (i.e., you could qualify for lower rates and better terms). The average homeowners spend an estimated $300,000 in their lifetimes on unnecessary interest expenses.
Ensure no fraudulent or erroneous activity has occurred related to credit profile. An estimated one in eleven families was a victim of identity theft last year.