How do I build my credit? We hear this question more than just about any other. Building credit is one of those old Catch-22s. Kind of like the first time you tried to find a job: If no one will hire without experience, how do you get it? The same goes for those who have no credit history at all, and those who may have had some damage occur to their credit scores. If you’re one of millions of Americans looking to build your credit but you don’t know how, or where to start, we’re here to help.
There are several different actions you can take to help build your credit. However, the most effective (by a good margin) is using a credit card the right way. On your credit report, credit cards are referred to as “Revolving Accounts.” Many consumers are surprised to learn their credit card(s), or Revolving Accounts, make up a whopping 30% of their credit score.
This means if you do not have at least one credit card then you are missing out on 30% of your credit score! The lowest credit score a consumer can have is 350, and highest is 850. There is potential for 150 points by simply having a credit card and using it wisely every month. Having a credit card is only half part of the solution to raising your credit score, it must be used properly!
Whether you have one credit card, five credit cards, or more, every one you have should be under 30% of the account’s total credit limit. To simplify it even further, if you have one credit card with a $100 limit, you should never use more than $30 of that available credit each month. If you’re able to pay off your balances every month, then by all means do so.
Now, why do we highly recommend using only 30%? The credit bureaus report the balance you have at the end of each billing cycle. So, if you carry a $75 balance on your $100 credit card, you are losing valuable credit score points for carrying 75% of balance, whether you pay the card off or not. As a consumer, you only need to utilize 1% of your credit line each month do generate and maintain payment history on your account. This is also why we suggest setting up a small, recurring monthly payment with your credit card(s) and pay the bill as soon as it comes in the mail.
Can’t get a credit card due to your history or lack thereof? There’s a solution to that as well – it’s called a Secured Credit Card.
The vast majority of credit cards you hear about are unsecured. This means they don’t require any kind of collateral. Your credit limit is based on your credit worthiness. A Secured Credit Card means the card is backed by a cash deposit made by you. That deposit is your credit limit. There are some secured cards that allow you add money to the deposit so you can increase your credit limit. Some can even increase your limit without additional funds if you’re able to demonstrate an exceptional payment history. If you would like more information on secured credit cards, click here.
If you have additional questions, we encourage you to contact us at (888) 795-9088 for a free consultation.