Tips for Building a Good Credit Score

3/27/24  | Lindsay Gehman, Marketing Manager

 

Credit scores can be very tricky things. What exactly is credit? What does a score mean? What affects your score? How much of my available credit should I use? How do I build credit if I don’t have any to start with? We’re here to answer some of those questions for you.

According to the Consumer Financial Protection Bureau (CFPB) a credit score is defined as “a prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports.” Anytime you are going to apply for a loan, whether that loan is for a home, a car, a credit card, etc. the company deciding whether or not to lend you that money will check your credit score as part of the approval process. So how do you start to build a credit score?

Tips to Build Credit

• Get a checking account. Building a credit score is sort of like building job experience – you have to start somewhere. Having a checking account and establishing a good relationship with your bank can help you to get a loan or credit card from your bank when you are ready. Avoid overdrafts whenever possible and keep the balances positive. This shows your bank that you manage your money well.
• The best thing you can do is to pay all of your bills on time. This includes things like utilities, cell phone bills or streaming services. These types of billers don’t always show up on a credit report when you pay on time, but if you are late making a payment many of these companies will report that to the credit bureaus. When you do get a loan, you will see those negative reports reflected on your credit report. Being late by even a day or two will negatively impact your score. Do what you can to keep track of payment due dates.
• If you have a parent or family member with good credit, consider asking if they would be willing to make you an authorized user on their account. This allows you to develop your credit history with some help. But the same rules apply – make sure those payments are made on time! Parents can decide to do this while their kids are still in grade school. The sooner you can start to build their score the easier it will be for them in the future when they go out on their own.
• Don’t use all of your credit. Even if you plan to pay off your balances in full each month, lenders don’t want to see you use every penny available. We recommend using only 30% or less of your available credit. (This is called your credit utilization ratio or CRU.) Let’s say you get approved for a credit card with a $5,000 limit. If you charge $2,500 to that card each month you have a 50% CRU. If you charge $1,500 to the card, you have a 30% CRU. Experian, a major consumer credit reporting company, recommends keeping your CRU around 30%.

• Keep tabs on your credit score. There are several companies that offer credit monitoring services. Some of them charge a monthly or annual fee, others are free. Even a basic monitoring service can help you track your score as you build credit or alert you to any unusual activity. A google search for “free credit monitoring service” will provide a variety of options for you.

 

What is a Good Credit Score

According to Experian, on a scale of 300 – 850, a score of 700 or above is considered a good. Anything above 800 is an excellent credit score. The average credit score in the U.S. in 2022 is 714. So as you build credit, aim to follow these tips to raise or keep your score above 700.

Wherever you are on the road to building credit, it’s never too late to develop good money habits. Check out other tips on building a budget and managing your finances.