Let’s look at a few ways to build good credit and keep a healthy credit score.
The sooner you start using credit - and can demonstrate how to use it responsibly - the quicker you can build a healthy credit score.
Start with a credit card account and learn how to use it. Take time to learn what your card issuer expects from you and comply with the terms of your card agreement.
Good credit behavior starts with making monthly payments on time and in full whenever possible. That means knowing your accounts’ balances and due dates and understanding the consequences of late or partial payments, including interest rates, late fees and other charges.
Your behavior can impact your credit score, which can determine your access to credit and your credit limit in the future. Good credit behavior today can mean more opportunities down the road. Missed payments, late payments and other bad behavior can limit the credit you’ll have available in the future.
Let’s look at a few ways to avoid negatively impacting your credit score.
Most experts recommend using no more than 30% of your available credit at any given time. In industry terms, that’s called your “credit utilization ratio.” Keeping it below 30% signals to future creditors that you’re a responsible borrower.
Using different kinds of credit shows responsibility and maturity too. As your credit use expands, and if you have more options, try exploring new credit alternatives beyond credit cards.
Credit cards are commonly structured as “revolving credit” - a line of credit you can borrow from freely but that’s capped with a limit. Home equity lines of credit and personal lines of credit are also known as revolving credit.
Home loans, auto loans and student loans are structured as “installment credit” - a set amount of money with a fixed payment schedule.
A third form, known as “open credit,” isn’t often included on credit reports. It refers to a kind of credit that requires payment in full at the end of each cycle and is not used very often anymore.
A healthy credit mix, with both revolving and installment credit, all used with good behavior, can look strong and healthy to future creditors. All of the above are included in your credit utilization rate, and good management of each can build excellent credit.
Keep in mind your credit score is based on more than credit cards and loans. Your payment history with other bills - like utilities, subscription plans, memberships and even rent - can impact your credit score too.
Too many credit inquiries is bad for building credit. The industry term for a credit application is a "hard inquiry," and when you apply for a new credit card frequently or even request a credit limit increase, lenders view that activity as unstable.
They believe it shows you’re unable to manage the credit card debt currently available to you, or you’re seeking more credit than you probably can afford.
The longer you manage a credit account responsibly, the more confidence you instill in potential creditors. For example, a credit card with years of on-time, full payments demonstrates a commitment to good behavior and repaying debts.
We’ve talked about using no more than 30% of your debt. Paying off your debt in full is even better. On your credit report, a fully paid debt shows that you’ve borrowed money and paid it back successfully. It also lowers your debt burden, minimizing interest fees and improving your utilization ratio.
As you budget for your household, include the debt you’re carrying and the credit available to you. Think about your credit card balances throughout the month - and consider your expectations as you plan for future milestones.
If college tuition is ahead, what can you do now to ensure a good credit score when you need it most? How can you improve your credit behavior now to get more access when you need it, like when you apply for a mortgage or want to take a big trip?
Some banks and credit card companies offer free credit score access. (Most come with assurances the credit checks won’t negatively impact your score.)
Look for errors or unexpected activity. Study your history, track your progress and see what you can do differently to boost your score.
There are lots of ways to improve your score, including credit-building plans, credit-building loans, and secured credit cards.
A credit-building plan can help guide how you use your debt and manage your payments. They’re designed to encourage good behavior and keep you on track. Credit repair companies that offer these plans, often delivered as apps, will work on your behalf with the three credit bureaus, Equifax, Transunion and Experian.
Credit-building loans involve regular structured payments built to demonstrate good behavior. They often work like a secured credit card, where you deposit a set amount and use it like a credit card, capped by the amount of your deposit. You’re essentially depositing your own money in an account and then borrowing it back to demonstrate you know how to handle credit responsibly.
Get help from friends and family. Use co-signers or sponsors and add authorized users who are reliable, trustworthy and can add good credit behavior.
Learning how others use credit responsibly can help reinforce your own good behavior, too.
Bright can help, too. Download the Bright app, connect your accounts, and with your personalized Bright Plan, start enjoying on-time payments automatically. It’s one of the best ways to boost your credit score, and your Bright Plan finds ways to save you money too.
To really focus on raising your credit score, add the Bright Credit Builder and get a new line of credit with on-time payments built in. Your utilization is never reported to credit bureaus, the new line helps diversify your credit history, and it never expires, offering long-term stability, especially when other accounts get closed.