Everyone is talking about credit. So, what exactly is it? In a nutshell, it’s a contractual agreement between a borrower (you), and a lender in which the borrower receives something of value in return for agreeing to pay for it later. Credit offers a convenient and safe way to manage purchases as long as you can stay on top of your payment obligations.
While most people don’t enjoy thinking about their credit score, this score shows lenders your creditworthiness. You’ll need a higher score (700 - 850) to get approved for better credit cards, receive loans with lower interest rates, and gain more negotiating power.
Maintaining good credit is essential for building your credit rating. Missing payments, making late payments or consistently exceeding your authorized credit card limit can negatively impact your credit.
Whether you’re someone who has no credit history or someone who is working on improving a low credit score, here are the five most effective tips to build or improve your credit.
1. Use a Credit Card to Build Credit
When you’re trying to build your credit, signing up for a credit card can significantly help. Essentially, credit cards allow you to grow your credit history and show lenders you can properly manage credit.
If you want to use a credit card to build your credit, Experian, one of the three national credit bureaus that create credit reports, recommends you pay your card off on time and keep a low utilization rate. To maintain a low utilization rate, you’ll want to ensure your credit card’s balance is well below its credit limit.
If you have almost no credit, you can consider having a student or secured credit card. However, if you have some existing credit history, you may be approved for a rewards card, which is how you can earn cashback and rewards on products or services you’d already be purchasing. Instead of always paying cash for purchases, put more on your credit card to build your credit history and earn cashback at the same time – just be sure to pay the bill on time, every month.
2. Keep Your Old Credit Card Accounts Open and Let Them Age
Many things get better with age - wine, cheddar cheese, and jeans – and the same holds true with credit. While you may think it’s a good idea to close out an old credit card that you rarely or never use, this can impact the opportunity to increase your credit score. Since your credit history’s length is one of the main factors the three major credit bureaus—TransUnion, Equifax, and Experian— use to calculate your credit score, it’s beneficial to keep your old credit card accounts open and active.
Alternatively, closing an old account can hurt your credit score, as it will bring your average credit age down. You should also know that many credit card companies close accounts that haven’t been used over extended periods.
A simple tip to keep your old cards active is to set them to autopay a monthly recurring bill. Just make sure to pay the card’s balance off each month.
3. Ask Someone You Trust if You Can Be an Authorized User on Their Credit Card Account
If you have limited or no credit history, consider asking someone you trust if you can be an authorized user on their credit card account. This can be one of the fastest ways to build credit. Once they add you as an authorized user, you’ll be a secondary account holder on their card.
As a secondary account holder, you’ll have the chance to improve your credit without having to spend any money, take out any loans, or even use the card yourself. As the primary account holder uses the card and pays it off, your credit will improve due to your status as an authorized user on the card.
Of course, you’ll want to only add yourself to someone else’s account if they have a track record of a low credit utilization rate and on-time payments. Additionally, to repay this favor, you will need to ensure that you can pay your portion of the bill if you decide to charge purchases to this card.
4. Don’t Just Stick to Credit Cards for Building Your Credit History
We’ve talked a lot about credit cards, but they aren’t the only way you can build credit. When a lender looks at your credit history, they’ll want to know if you can manage various types of accounts and will check your credit mix to perform this test.
This credit mix will include the types of credit you’ve received in the past, such as student loans, car loans, credit builder loans, mortgages, and personal loans. Since a greater mix of credit signals to lenders that you can handle various types of loans, utilizing multiple kinds of credit can raise your credit score.
If you don’t have credit history and want to know how to start to build your credit score, you might want to consider looking into credit builder loans. With one of these loans, you make fixed payments to your lender and don’t receive the loan amount until you’ve finished paying it off. These loans are particularly attractive to people with no credit history, as the loan is specifically designed for building credit and the lender will report payments to the major credit bureaus.
5. Track Your Spending and Pay Bills on Time With a Bill Pay App
As mentioned, missing payments, or making late payments can significantly impact your credit score. In fact, Equifax states that even a single late or missed payment can lower your credit score. Due to the potential harm of missing a payment, make it a priority to pay off any loans or credit card debt that you have on time. This need to pay on time means you’ll always want to know where you owe money and have a plan to pay it back.
Though it’s easy to say you should pay your bills on time, you might want to know how you can make the advice actionable. To help ensure you pay your bills on time, a bill pay app like TiFiPay provides timely reminders about bill due dates to help you stay on top of your spending. TiFiPay also makes it easier for users to pay their bills by allowing them to pay directly from the app. With these features, you can easily keep up with your bill due dates, pay your bills, and build your credit score.
Build Your Credit With TiFiPay
At TiFiPay, we know the benefit a great credit score can do for the lives of our users. As a result, we created the TiFiPay app to help users pay their bills on time, track their spending, and gain better control over their credit scores. After you sign up for our next-generation bill pay app, you can effortlessly upload billing documents, pay your bills directly from the app, and organize your finances.
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