Tips for Building a Good Credit Score
Part of the Credit Repair Kit For Dummies Cheat Sheet
Building good credit takes time. Whether you've made some mistakes and need to repair your credit or just want to keep your credit looking good, the tips in the following list offer good advice:
Review your free credit report every year. You can get it for free!
Keep balances below 50 percent of your credit limits. Your balance is the second biggest factor affecting your score. High balances mean high risk and maybe higher interest rates for you.
Dispute any errors or out-of-date information. Up to 25 percent of credit reports have errors; yours may too. Disputing negative errors can boost your score.
Pay your bills on time. The largest part of your credit score is based on your payment history. Get a system in place that suits your style to make sure you don't forget any due dates.
Keep your accounts open longer. Length of credit history is another important factor. Don't close your older accounts if possible. Add new accounts if you like, but don't automatically close your older ones when you do. Doing so can cause you to lose points for having new inquiries, adding new credit, and having a shorter history.
New credit can lower your score. In the short run, the combination of more available credit and more inquiries on your account can increase your risk profile and lower your score. This is most sensitive for those without a long credit history. The bottom line is that you should only add new credit when it makes sense, not just to have another card or to get an incentive gift.
Use more than one type of credit. Open a variety of accounts to show that you can manage credit cards, retail accounts, installment loans, and other types of credit.
Accurate negative information stays on your credit report for seven to ten years. However, it counts for less every time you add positive information to your report. Most credit scores look heavily at the last two years of history, not all seven.
Secured cards can help establish or reestablish credit. These cards are backed by your savings and build a positive payment history with the bureaus. A positive payment history improves your score.
Cosigning for anyone is dangerous to your credit score. If they default, you might not know about it for months. You will not only be responsible for the debt, but your credit score will suffer as well.