Money Mechanics Blog

Building good credit is crucial for achieving your financial goals, whether you're looking to buy a home, secure a loan, or simply improve your financial standing. Understanding how credit works and taking proactive steps can set you on the right path. Here are some essential tips to help you build and maintain a solid credit score.

1. Understand Credit Scores

Before diving into strategies for building credit, it's important to understand what a credit score is and what influences it. Credit scores typically range from 300 to 850, and they are affected by:

• Payment History (35%): Timely payments positively impact your score.
• Credit Utilization (30%): This is the ratio of your credit card balances to their limits. Keeping this below 30% is ideal.
• Length of Credit History (15%): Longer histories generally contribute to higher scores.
• Types of Credit Used (10%): A mix of credit types (credit cards, installment loans) can be beneficial.
• Recent Inquiries (10%): Too many inquiries in a short period can lower your score.

2. Open a Credit Card

If you don’t already have a credit card, consider applying for one. The Allegius VISA Credit Card is a great place to start.  

3. Make Payments on Time

Your payment history is the most significant factor affecting your credit score. Set up reminders or automate payments to ensure you never miss a due date. Even one missed payment can have a lasting impact.

4. Keep Balances Low

Aim to keep your credit card balances well below your credit limits. Ideally, try to keep your credit utilization ratio under 30%. Paying off your balance in full each month is the best strategy, but if that's not feasible, make more than the minimum payment.

5. Don’t Open Too Many Accounts at Once

While it can be tempting to open multiple credit accounts to quickly boost your credit mix, too many inquiries can hurt your score. Space out your applications and focus on managing existing accounts effectively.

6. Become an Authorized User

If you have a family member or trusted friend with good credit, consider asking to be added as an authorized user on their credit card. Their positive payment history can help improve your score without needing to manage the account yourself.

7. Monitor Your Credit Report

Regularly check your credit report for inaccuracies or fraudulent activities. You’re entitled to one free credit report annually from each of the three major credit bureaus (Equifax, Experian, and TransUnion). Dispute any errors you find to ensure your report accurately reflects your credit history.

8. Diversify Your Credit Mix

While it's not necessary to have a lot of different types of credit, having a mix of revolving (credit cards) and installment (loans) accounts can be beneficial. Just be cautious and ensure you can manage any new debt responsibly.

9. Be Patient

Building credit takes time. Don’t be discouraged if you don’t see immediate results. Consistency in making timely payments and managing credit wisely will yield positive outcomes over time.

10. Seek Financial Counseling if Needed

If you're feeling overwhelmed, consider seeking guidance from a financial advisor or credit counselor. They can provide personalized strategies based on your financial situation. Our partners at GreenPath are a great resource.

Building and maintaining good credit is a marathon, not a sprint. By following these tips and staying disciplined, you’ll pave the way for a strong credit profile, making it easier to achieve your financial goals. Remember, your credit score is a reflection of your financial habits—start cultivating positive ones today!