It does not take rocket science to understand the concept of how do you build credit. All that is required is building a history of on-time payments. This means you need to stay on top of all your monthly bills from credit cards to auto loans and anything else that might have a late payment due. You can build credit simply by paying on time every month and decreasing your outstanding credit card debt. When you hear about how crucial it is to construct good credit, most financial experts really are referring to two things: your personal credit report and your credit score.
Your credit report is an accurate reflection of your borrowing history and ability to pay. In order to make sure that your report is accurate, you will have to obtain your report from the three major credit reporting agencies once every 12 months. Each of the bureaus maintains a credit file on consumers, and these files are available for you to review online. Once you obtain your individual credit file, you will be able to quickly see any errors or mistakes that could be affecting your reports.
Once you know what areas of your report need correction, you need to begin establishing good credit. This is done by paying off your outstanding bills and making all of your payments on time. If a company checks your credit on a regular basis, the credit bureaus will consider you to be in good standing when it comes to paying your bills. However, if you check your file only when something important happens, you may not be considered good enough to qualify for favorable interest rates. Instead, you will want to start raising your score as soon as possible. The better your score, the more likely you are to qualify for lower interest rates.
How do you build a credit score? The three major credit bureaus, Transunion, Experian, and Equifax, will send you credit score reports each year after you have filed your financial statement with them. These reports contain detailed information about your past borrowing history, current income, and monthly expenses. You can expect to see ranges of where you stand, rather than scores, which means that you should not base your decisions on one of these reports.
The best way to raise your score is to pay down your debt, but this is easier said than done. The best way to pay down debt is to consolidate loans, but this is the most expensive method of doing so. The easiest and fastest way to lower interest rates is to pay your balances off each month. When you pay off old debt, your credit history will improve and your score will go up. However, this method takes longer and is much more costly than other options.
In order to consolidate loans and get a better credit score, consider paying off old credit card accounts. When you close credit card accounts, the debt you have at that time has a negative impact on your FICO score. If you have a lot of high-interest payments, this may be the best option for you. However, it can take several months and lots of discipline to completely pay off old credit card accounts. You may also benefit from stopping any new requests for credit cards, as these inquiries will only add to your balance.
This post was written by Kristian D’An, owner of Lux Credit LLC and CCA board certified credit repair specialist. Lux Credit offers best credit repair services for those looking to improve their credit!