Credit · May 14, 2020

Work Toward Your Financial Goals by Building a Good Credit Score

If you've signed up for a credit card, applied for an apartment or enrolled in cell phone service, you've probably had your credit checked. These kinds of companies typically want to see if you have a good credit score before they accept you as a customer. It gives them a snapshot of your financial history and helps them determine if you're likely to make timely payments.

As you apply for more and different types of credit, you may realize your credit score is more important than you thought—it can have a real impact on your ability to get many of the things you want and need. That's why it's key to maintain a healthy credit score and work to improve yours over time.


Why is it important to have a good credit score?

FICO credit scores—named for the Fair Isaac Corporation that created them—are the industry standard. They run from about 300 to 850, with the scores falling into these general categories in terms of credit strength:

  • 580 or less: Poor credit
  • 580-669: Fair credit
  • 670-739: Good credit
  • 740-799: Very good credit
  • 800+: Exceptional credit

If your score is poor or even fair, you might not be able to get a loan when you need one. If a lender agrees to give you a loan, you might be charged high interest and fees compared with someone who has good credit. Landlords might not want to rent property to you, and cell phone companies might ask you to put some money down before they'll open an account. Employers can even check your credit when you apply for a job, and they might be reluctant to hire you if you have a poor track record with money.

On the other hand, a good credit score will make the process much smoother when you open utility accounts, apply for a mortgage or rent an apartment. People with excellent credit are more likely to be approved for auto loans and personal loans, and they're more likely to receive a lower interest rate on the credit they applied for.

Building your credit history

Building credit takes time. You need to have an account open for at least six months to get a FICO score if you're starting to build credit. And if you have negative information such as late payments on your credit report, it generally takes seven years for that to be removed.

The good news is that you can start implementing some best practices right now to establish credit or improve your credit score.

  • Pay bills and rent on time. Late or missing payments can harm your credit.
  • Don't rely solely on cash. Some people have poor or no credit because they don't use the banking system. To ensure your payments help build your credit, open a checking account and a savings account.
  • Borrow some money that you can easily pay back. Taking out a small loan or opening a credit card with a bank or retailer can help you establish a credit record. Make regular, on-time payments to demonstrate financial responsibility.
  • Stay well below your borrowing limit. Keep your outstanding balance below 30% of the amount you're allowed to borrow.
  • Don't apply for a lot of credit at once. Trying to take on too much debt at one time may lower your score. Keep just a couple credit card accounts, and try to only use those. This helps you establish a long-term history with these credit card companies, which helps to improve your score. It also avoids giving the impression that you're shopping for credit by applying for new accounts often.
  • Ask if your landlord will report your rent payments to the credit bureaus. If your landlord agrees, your on-time payments can help build your credit with Experian, one of the national credit bureaus. You can also use a rent reporting service to report rent yourself, but there are fees.
  • Check your credit report. You can get a free credit report once every 12 months from each of the three major credit bureaus at AnnualCreditReport.com. If you ask for a report from a different bureau every four months, you can get a free credit report three times a year. Each credit bureau scores slightly different, and some update every 60 days instead of every 30, so having all three reports will help you spot irregularities. Look over the information in your report to make sure it's accurate. If you find a mistake, contact the credit bureau to get it fixed. 

As you show the credit bureaus that you can borrow responsibly, your score should start increasing. Start putting these best practices in place to improve your credit score today and take your financial future into your own hands.

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