5 Ways You Can Build Your Credit in Preparation for Your Future Plans

| August 11, 2018

your creditWhen your future plans include big purchases like a car or home, it’s important to plan ahead. By building a positive credit history, you ensure that you qualify for the home or car you want. You also ensure that you will get the lowest interest rate, which saves you thousands of dollars over the life of a car loan or mortgage. Here are 5 tips for building your credit.

Establish a Long History and Pay on Time

These two factors are the most important. If you have a spotless payment record, your score will be between decent and excellent.

The reason a perfect payment history does not automatically transfer to excellent credit is that excellent credit also requires lots of credit experience.

Someone who has an excellent payment history going back 10 years presents a better credit risk than one who has a perfect payment history going back two years.

To maximize your score, open a few credit accounts and keep them open for a long time. Avoid opening and closing numerous credit card accounts.

Keep Your Revolving Debt Low

Debt-to-income ratio makes a huge difference in your credit score. Revolving debt, or the debt you owe on credit cards, sinks your score when it gets above 50 percent.

Ideally, you should never carry balances equal to more than about 30 percent of your available credit. To maximize your score, keep it between zero and 10 percent.

Leave Old Debt on Your Report

Assuming that old, paid-off debt reflects a positive payment history, it’s good for your credit, according to Bank rate.

Many people make the mistake of trying to have paid-off accounts removed from their credit reports.

They erroneously believe that eliminating the account will boost their scores.

The opposite is true. A paid-off car loan, for example, only boosts a credit score. It is especially good if you are shopping for a car.

Avoid Excessive Credit Inquiries

Many people mistakenly believe that having several credit inquiries from car dealerships hurts their credit scores.

While it’s true that excessive inquiries are damaging, inquiries from several car dealerships within 30 days are all counted as one credit inquiry.

The score is designed this way because most people visit several dealerships. For example, Woody Sanderson Ford in Cincinnati routinely sells new ford cars for sale and sees customers who have had their credit pulled at other dealerships within the past days and weeks.

This does not damage a credit score. It gives finance managers an opportunity to provide a more attractive loan offer.

Credit scores are based on payment history and the amount of credit extended. The best scores result from long, positive payment histories and light credit utilization. These factors indicate the lowest credit risk.

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Category: Debt

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