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How to Build Your Credit Score

Posted on May 21, 2015

Got a lackluster credit score? Want to have a better one? Perhaps you're a young adult just starting out on your own and want to build your credit from the ground up. There are many ways you can build your credit, but they are not all created equal. Play it safe, avoid the risky stuff, and you'll enjoy the perks of having a solid credit score. With better credit, you'll be able to get better rates on mortgages and loans, and may even have a better shot at landing the job you want. Shoring up your credit score doesn't happen overnight, but there are ways to achieve it. Here's how to build your credit score.

Keep Your Credit Cards in Check
This is a biggie. While you may think high balances on your cards are what contribute to a poor credit score, it's actually more an issue of how much revolving credit you have versus how much credit you're actually using, says Bankrate. The smaller the percentage, the better your credit rating, with most experts advising on keeping your debt-to-credit ratio at 30 percent or lower.

Pay down your credit cards every month and try to keep your balances within reason. Sign up for automatic alerts so you never miss a payment. Making a pattern of missed payments will definitely ding your score. Get rid of those so-called "nuisance balances" on credit cards that suck up your time and energy, which include high-interest branded credit cards. Instead of spreading your purchases out over several cards, keep them on one and pay the balance down, or else your credit report will suffer the consequences.

Nix the Risky Behavior
Out-of-character behavior will signal a red flag on your credit report, such as missing payments when you never had before, suddenly paying less on your monthly payments, or suddenly making more charges or increasing spending. Taking out a cash advance or using a credit card to charge services at, say, your divorce lawyer's office or a pawn shop, can indicate risk to anyone who's paying attention. Avoiding these risky behaviors—or, more proactively, demonstrating consistent payment and financially responsibility—will help you build your credit score.

Ask for Lenience
Perhaps you lost your job last year and had to flake out on a couple of bills. Maybe you missed a mortgage payment or two due to poor planning or unexpected expenses. All is not lost! Many creditors will make a good-will adjustment on a one-time basis to remove something negative from your credit report. It doesn't always work, but if it is your first offense, you have a better chance of them going easy on you. It can't hurt, so put it in writing and hope for the best.

No Credit? Sign Up for Credit Cards
As someone in college or just out of it, you may find your credit score is pretty low or even that you don't yet have a credit score. That's because you haven't built up a history of anything yet, be it work history or making payments on time. Take out a credit card or two, charge small amounts, and pay their balances off in full every month. This will show creditors that you're a good risk and a responsible credit user, and your credit score will grow.

Above all, have patience when it comes to improving your credit score. Seeing any improvement at all can take between 30 and 60 days, says Forbes. Also, consider the fact that a survey by the National Foundation for Credit Counseling says more people are embarrassed to admit their credit scores (30 percent) than their weight (12 percent)! Whether you're repairing your credit score or starting from scratch, these tips will help you grow your credit history and show that you're financially responsible.

If you have questions about building your credit score, please feel free to contact us. We have financial advisors who can assist with making the right decisions for your credit score.

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