Essential Rules to Build Your Credit
Maintaining good credit is an important part of a healthy financial life. It allows you to qualify for new credit accounts—like car loans, credit cards, and mortgages—at the lowest interest rates possible.
If you’re having trouble improving your credit or you’re building credit for the first time, it’s important to understand how credit really works and what influences scores the most.
7 Rules to Help Build Your Credit
Rule #1: Credit scores come from data in your credit report.
Credit scores are calculated using the information in your credit files that are maintained by nationwide credit reporting agencies like Equifax, Experian, and TransUnion. The vast majority of consumers have errors on their credit reports that go undetected for years because they’ve never taken the time to review them.
Rule #2: Bad credit marks can’t be erased.
The reason negative information on your credit history is so detrimental is that it stays there for a long time. Late payments remain for 7 years and some bankruptcies remain for 10 years.
So, one strategy to building and maintaining great credit is to never have a negative item added to your credit file in the first place!
Rule #3: Building good credit takes time.
Credit scores can’t be changed overnight because they’re designed to reflect your credit behavior over time.
The good news is that credit scores typically give more weight to recent activity and information. So, if you do have negative information on your credit report—like late payments, an account in collections, or a bankruptcy—time is on your side. Maybe you need a Credit Restoration to effectively help get you and your credit report in a position to apply with confidence.
Rule #4: Paying bills on time.
Paying bills on time is the best way to build an impressive credit history, and missing payments and having accounts in collection will hurt your credit scores more than any other factor.
Rule #5: Credit cards are credit-building tools.
Credit cards are one of the most convenient and safe ways to make purchases—plus, they give you a powerful way to build a strong credit history. Since you decide how much to charge and pay off each month, a credit card reveals how responsible you are with credit and can really boost your scores.
The best way to manage a credit card is to avoid interest charges altogether by paying the balance off in full each month. You never have to carry a balance or pay any interest to build credit.
Rule #6: Installment loans build credit.
Having an installment loan—like a car loan, student loan, or mortgage—is great for your credit because it demonstrates that you’re a reliable borrower when you consistently pay on time. While lowering your total amount of debt can improve credit, in most cases it isn’t better to pay off student loans and mortgages ahead of schedule. Whether you're looking for a home or purchasing a new vehicle, Ramsey Credit Services is here to help.
Rule #7: You must use credit to have a credit score.
The key to building credit fast is to use credit accounts—but in moderation! Never abuse credit by using it to pay for a lifestyle that you can’t afford because that destroys your financial future and your credit.
Since credit scores are based on what’s in your credit file, your goal should be to accumulate a long history of good credit behavior for different types of credit accounts, such as credit cards, lines of credit, and installments.