How to Build Credit and Achieve a Good Credit Score

Getting a good credit score is essential if you care about your overall financial health. When you have good credit, you increase your credit card eligibility rates and get some of the best interest rates on different credit products.

But building good credit doesn’t happen overnight. Instead, you need to consistently practice responsible credit behavior, such as paying your bills on time and limiting debt.

Rod Griffin, Experian’s director of public education, told Select: “Building a credit history takes time, so it’s a good idea to start early so credit is ready to help you when you need it.

Below, Select reviews credit score basics and credit building tips that can help improve your credit score over time.

Your credit score is a three-digit number, between 300 and 850, that is the result of analyzing your credit file. Lenders use your credit score to assess your potential credit risk and ability to repay loans. Credit score ranges vary based on the model used (FICO vs. VantageScore) and the credit bureaus (Experian, Equifax, and TransUnion) that issue the scores. FICO scores are used in 90% of lending decisions, so those ranges are listed below, using estimates from Experian.

• Very poor: 300 to 579
• Equal: 580 to 669
• Good: 670 to 739
• Very good: 740 to 799
• Excellent: 800 to 850

Credit scores are calculated by looking at five key factors. Here are the key factors that FICO considers.

1. Payment history (35%): Whether you paid your previous credit accounts on time
2. Amount owed (30%): The total amount of credit and loan you are using compared to your total credit limit, also known as your utilization ratio
3. Credit history length (15%): Time period you have credit
4. New credit (10%): How often you sign up and open new accounts
5. Credit structure (10%): The wide range of credit products you have, including credit cards, installment loans, financial company accounts, mortgage loans, etc.

“Paying on time and keeping your balance low are the two most important factors when it comes to building credit,” says Griffin.

In fact, payment history is the single most important factor that makes up your credit score. Your credit score looks at whether you make your payments on time or late and if you have a monthly balance or pay it off.

It’s a good idea to pay your bill in full each month to avoid late payment fees, penalty APRs, and interest charges that often arise from balance transfers. (Find out when a credit card payment is considered late.)

“Before opening a credit account, you should know why you are opening the account, what you will use it for, and how you will pay off the balance,” says Griffin.

As a general rule, set up autopay with at least the minimum payout, so you can avoid unnecessary risks. You can also schedule emails, text messages, or push notifications through your card issuer.

Griffin explains: “If your balance grows over time, your credit score will suffer. Usage ratio, or balance-to-limit ratio, is the second most important factor in a score, after your payment history”.

To calculate your utilization rate, add up the total balance on all your credit cards and divide by your total credit limit on all cards.

Let’s say you have two credit cards:

• Card: $1,000 balance and $3,000 credit line
• Card B: $3,000 balance and $5,000 credit limit

Your total balance will be $4,000 and your total credit limit will be $8,000. That makes your usage 50%, high. You should aim for a low utilization rate of around 30% to improve your credit score.

“The important thing for consumers to remember, the lower your utilization rate, the better,” says Griffin. “While any balance can cause a score to drop, using more than 30% can cause a score to drop faster due to a much greater chance of default.”

If you’re finding it difficult to keep track of the percentage of credit you use, take advantage of the various alerts your card issuer sets, such as when your balance exceeds a certain amount or when you’re about to reach your credit limit. If you have no problem paying your balance in full each month, you can also call your card issuer and ask them to increase your credit limit.

Griffin warns: “More is not always better when it comes to building credit. “Opening too many accounts at once can make you look like a bigger risk to lenders and have a negative impact on your credit score.”

Each time you apply for credit, a question will appear on your credit report, regardless of whether you are approved or denied. This can temporarily lower your credit score by about five points, although it should rise again in a few months. While a single credit request is unlikely to affect your score, the impact can increase if you apply for multiple cards in a short period of time.

If you want to open more credit cards, consider doing it over time instead of the same month. While there’s no such thing as an overwhelming number of credit cards, it’s not wise to sign up for more than one card at a time. You should release them – I opened 10 credit cards in 5 years.

“Remember, credit cards aren’t the only option for building credit. If you have a personal loan, student loan, car loan or mortgage, you’ll want to make sure that I’m also managing these responsibly,” Griffin explained.

Here are some alternative ways to build credit.

Sign up for a security card

If you struggle to get approved for a credit card, there are alternatives. You can consider secured cards, built for people who want to build or rebuild credit. A secured card is almost identical to an unsecured card, but you must make a security deposit (usually $200) to get a line of credit. The amount you deposit usually becomes your line of credit.

With a secured card, such as the Discover it® Secured Credit Card, you can accumulate credits using the card, then switch to an unsecured card after responsible account management. Starting seven months from account opening, Discover will automatically review your credit card account to see if they can transfer you to an unsecured line of credit and return your deposit. or not. This saves you from guessing when you’ll be eligible for an unsecured credit card.

Become an authorized user

Another option is to ask a family member or close friend to add you as an authorized user on their credit card account. This is a relatively low-risk way of building credit because you are not responsible for bill payments and can simply take on someone else’s credit. Before you are added as an authorized user, make sure the account owner has good credit.

Get credit to pay eligible bills

If you want to avoid credit cards altogether, you’re not out of options. You can get credits to pay your monthly utility, mobile and online service bills on time with *Experian Boost™, which is free to use.

“Two out of three people see their credit score increase instantly with an average increase of more than 10 points,” says Griffin. “When you develop good credit habits overtime, you’ll be rewarded when your credit score responds positively.”

*Results may vary. Some may not see improved scores or approval rates. Not all lenders use Experian’s credit profile, and not all lenders use scores affected by Experian Boost.

For Discover it® Secured Credit Card rates and fees, click here.