When it comes to taking control of your financial life, building better credit is a great place to start. Good credit can open up a lot of doors, from better access to loans to lower interest rates on mortgages and car loans. Plus, it’s a huge benefit if you’re looking to rent an apartment.
But the truth is, building good credit isn’t always easy. That’s why we’ve put together five steps to help you get started on a better path.
1. Check Your Credit Report
The first step to taking control is to check your credit report. You can get a free version of your report from each of the three major credit bureaus – Experian, Equifax, and TransUnion – once a year. Checking your report gives you the opportunity to make sure everything is accurate, and to identify and address any discrepancies.
2. Pay Your Bills on Time
Paying your bills on time is one of the most important aspects of building good credit. It’s essential that you make all of your payments on time, as any late payments can significantly impact your credit score. Set up reminders or automatic payments for your bills to make sure you always pay on time. A budget will help you reach your goals.
3. Reduce Your Debt
Reducing your debt is one of the best ways to improve your score. Consider using the snowball or avalanche methods to pay off your debt: start with the debt with the smallest balance or the highest interest rate, and work your way up from there. If you’re able to pay more than the minimum payments on your debt, do so — it’ll help you pay it off faster and improve your credit score.
4. Don’t Close Unused Accounts
It may be tempting to close unused credit cards, but it’s important to think before you do. Closing an account will reduce your total available credit, which could have a negative impact on your credit score. Unless you’re paying an annual fee or the card has a high interest rate, it’s best to keep it open and simply not use it.
5. Get a Secured Credit Card
If you’re just starting out and don’t have any credit history, a secured credit card can be a great way to start building your credit. They require a cash deposit that acts as collateral against any charges you make. As long as you make your payments on time and stay within your limit, your credit score will start to improve.
Building better credit isn’t always easy, but with a little bit of effort and dedication, it can be done. By following these five steps, you’ll be on your way to taking control of your financial life.