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Ways to Build Good Credit

Published July 28, 2016

Having a good credit score is imperative to living your life to the fullest in terms of making loans and leases easier! Read on for some tips about how to improve and keep a good credit score.

Only borrow what you can afford
When you get into the habit of charging only what you can afford, it lets future lenders and creditors know you are a responsible borrower. This will make it easier to borrow money and get new credit when you show that you know how to only borrow what you can pay back. Moreover, only charging what you can afford helps you avoid excessive debt.

The same thing goes for loans. Only take out as much loan as you can afford to repay, regardless of what the lender says you qualify for. Before you shop for a loan, review your budget to see what monthly payment you can afford. Make sure your loan payment doesn't exceed the amount you've come up with.

Use only a small amount of the credit you have available
Maxing out credit cards – or even coming close – is irresponsible, particularly if you don't plan to pay the whole balance off within the month. Lenders know that borrowers who max out their cards often have difficulty repaying what they've borrowed. Staying below 50% of your credit limit is wise, however below 30% is best to build good credit.

Start with only one credit card
Don't make the mistake of opening too many credit cards too soon! Many first-time credit card users accumulate a collection of credit cards within their first few years of using credit. The more credit you have, the more you'll end up using and the harder it will be to keep up with your balances and payments. Additionally, too many inquiries into your credit and too many new credit cards can negatively affect your credit score. It's best to earn how to be responsible with credit before you apply for additional credit cards.

Pay your credit card balance in full
If you're only charging what you can afford to pay, you won't have a problem paying your full balance every month. Paying off your balance each month shows you're capable of paying bills, something creditors and lenders want to see. Since a large part of credit score includes timeliness of payments, paying balances on time improves credit.

Make all your payments on time
Not all of your monthly payments are listed on your credit report, so they don't affect your credit as long as you're paying on time. But remember that any bill can potentially wind up on your credit report if you become delinquent and the account is sent to a collection agency. Keep any negative accounts off your credit report to build a good credit score. A serious delinquency like a debt collection can be difficult and timely to overcome.

If you carry a balance, do it the right way
Having a credit card balance isn't necessarily bad as long as you do it the right way. It's best to pay more than the minimum each month to pay off your balance as quickly as possible. Avoid making late credit card payments and continue to keep your balance at a reasonable level (below 30% of the credit limit). By following these principles, carrying a balance shouldn't hurt your credit.

Let your accounts age
Did you know the longer you've had credit, the better it is for your credit score? Leave your oldest accounts open since they help increase your credit age and build good credit. Closing the account won't remove it from your credit report immediately. But, after several years, the credit bureaus will eventually drop old, closed accounts from your credit report.

For more information on how equipped employees at Meriwest can help you learn more about, and improve, your credit score, please visit our website or contact one of the branches.

The preceding information is repurposed from About Money.

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