If you’re reading this (and we’re glad you are) you’re thinking about creating a credit profile or wanting to improve your existing profile. Either way, you’re in the right place!
Maybe you’re fresh out of school, new to the credit world, or looking to level up your credit. Whatever your circumstance, this guide is here to help you lay down some solid foundations.
We’ll go over:
- Establishing a credit profile.
- Maintaining an excellent credit score.
- Why it’s essential to work with certified, nonprofit credit counselors if things go off track.
Let’s dive in!
Starting from Scratch: Establishing Your Credit Profile
If you’ve never had a credit card or loan in your name, it might feel like the whole credit thing is some exclusive club you can’t get into. But everyone starts somewhere! Here are some simple steps to help you get started:
- Get a secured credit card. This is one of the best ways to start building credit. A secured credit card works like a regular credit card, but it requires a cash deposit up front. This deposit usually becomes your credit limit. The good news? Your payment activity gets reported to the credit bureaus, which helps build your credit history.
- Become an authorized user. If you have a family member or close friend with a good credit history, ask if they can add you as an authorized user on their credit card. You don’t have to use the card, but their good credit habits will reflect positively on your credit report.
- Apply for a credit-builder loan: These are small loans typically offered by credit unions or community banks. The loan amount is held in a secured savings account, and you make payments over a set period. Once the loan is repaid, you get the money, and you’ve also built a positive repayment history.
- Use a co-signer. If you’re applying for a loan or a credit card, a co-signer with good credit can boost your chances of approval. Just remember, the co-signer is equally responsible for the debt, so make sure you’re ready to handle the responsibility.
- Make regular on-time bill payments. In some cases, you may be able to report your monthly non-loan payments to credit bureaus. If you can show you consistently pay rent, utilities, and other bills on time, that can give your credit profile a little boost.
Maintaining a Strong Credit Score: Your Ongoing Effort
Building credit is like planting a tree. It takes time, care, and patience. Here’s how to nurture that financial acorn and keep it growing strong:
- Pay your bills on time, every time. This is the golden rule. Your payment history makes up the largest percentage of your credit score, so it’s crucial to make all of your minimum payments by their due dates. Pay more if you can afford to, of course. Late payments can have a significant impact, so set up reminders or auto-pay if necessary.
- Keep your credit utilization low. Credit utilization refers to the percentage of your credit limit that you’re using. A good rule of thumb is to keep your utilization below 30%. If you have a credit card with a $1,000 limit, try not to carry a balance of more than $300. This shows lenders you’re responsible about borrowing money.
- Avoid opening too many accounts at once. Each time you apply for credit, a hard inquiry is added to your credit report. Too many hard inquiries in a short period can signal to lenders that you might be overextending yourself. Apply for new credit sparingly and only when necessary.
- Diversify your credit mix. Lenders like to see that you can handle different types of credit. Those can include credit cards, installment loans, and retail accounts. A variety of credit types can positively affect your credit score, but only open accounts that you truly need.
- Monitor your credit regularly. Keeping an eye on your credit report is essential. You can check your complete report for free once a year from each of the three major credit bureaus (Equifax, Experian, and TransUnion) and through AnnualCreditReport.com. Monitoring helps you spot errors or potential fraud early.
If Things Go Sideways: The Importance of Certified Credit Counseling
Let’s face it. Life happens. Maybe an unexpected medical bill or job loss has caused you to miss a few payments. Now, your credit score isn’t looking so great. Here’s how to keep things from getting worse.
- Work with certified credit counseling services. If you find yourself struggling with debt or your credit score has taken a hit, working with a certified, nonprofit credit counselor on the CredEvolv platform can be a game-changer. These professionals are trained to help you manage your finances, create a budget, and develop a personalized plan to get you back on track and keep you there. They can also negotiate with creditors on your behalf. Use their experience to your benefit before you try to DIY your credit fixes.
- Avoid scams. Unfortunately, there are a lot of predatory credit repair companies out there that promise to “fix” your credit overnight for a hefty fee. If it sounds too good to be true, it probably is. Listen to your gut, or better yet, the counselor you’ve connected with through CredEvolv.
- Get legal advice. If you’re dealing with complex issues like bankruptcy or foreclosure, it’s wise to consult with a lawyer who specializes in credit and debt issues. The counselor you’ve engaged with on the CredEvolv platform may be able to refer you to trustworthy legal professionals if needed.
Your payment history makes up the largest percentage of your credit score, so it’s crucial to make all of your minimum payments by their due dates.
Wrapping Up: Here’s to Your Credit Success!
Establishing and maintaining a solid credit profile is a journey that can take many twists and turns. By entering into it or moving forward with knowledge and help, you’re investing in your future financial health. Remember to start small, be consistent, and follow the advice of a certified, nonprofit credit counselor when needed.
These folks can be invaluable allies, offering guidance, support, and the tools you need to succeed. We’d be glad to connect you with one today.
If you’re just starting out in the credit world, welcome! If you’ve been around for a while but hit some potholes, remember that it’s never too late to right the ship. Every day is a new opportunity to make positive financial choices. So go ahead, take that first step toward building or rebuilding your credit. We’ll be cheering you on the whole way!