Build and Repair Credit Step by Step

With credit comes opportunity – and responsibility. It is one of the essential keys to building financial success over a lifetime, helping you buy and furnish a home, start a business, own a car, and so much more. For this reason, building and maintaining credit are incredibly important – as is repairing credit when it needs improvement.

Fortunately, you can take several logical steps to do this. To start building credit, follow these guidelines.

1. Open the right amount of credit. In other words, rather than opening too much credit too fast, open only as much as you think you might need. This is because opening credit quickly can appear to lenders as desperation for funds, adversely affecting your credit score. At the same time, it's also important to have enough credit, so you aren't constantly "maxed out." It is best to have some of your credit open and available to use.

2. Keep credit open. How long you have maintained credit accounts is a significant component of your credit score, so even if you don't often use a particular credit card, keep it active by using it for a few transactions each year. That way, you will build a long history with creditors over time.

3. Use a balanced approach. For a good credit score, it's best to have various credit accounts. For example, instead of having only revolving credit accounts, such as credit cards or lines of credit, have a mix of both revolving credit and term loans, such as auto or personal loans.

4. Pay your bills on time. This is the most important thing you can do to build a strong credit history. Paying your bills on time every month shows potential lenders that you are a low-risk borrower and raises your credit score.

5. Watch your balances. If you carry a credit card balance and always make the minimum payment, your balances could spiral out of control. Keep tabs on them and work to pay down balances as needed to both manage interest expenses and free up credit for future use. If you need help with high-interest debt balances, a debt consolidation loan may be right for you.

6. Monitor your credit. By reviewing your credit report, available at annualcreditreport.com for free once each year, you can watch for errors and any other issues, you need to resolve.

To repair credit, incorporate these additional strategies:

1. Get your budget back on track. Whether you have fallen on hard times or have had difficulty managing your spending, getting your budget in order is a great way to identify ways to move forward. Start by listing out your typical expenses and income. Determine what your expenses are needs, such as housing and groceries, versus wants, like restaurant meals. Your goal is to bring spending down to a level below your income so you can identify ways to build savings and pay down debt.

2. Get a secured card. Once you have some savings, getting a secured credit card offers you a way to rebuild credit. A secured card provides you with a line of credit secured by funds in your savings account.

3. Get credit counseling. Free and low-cost credit counseling services can help you review your debt, mediate with your lenders, create a plan for getting out of debt, and more.

At United Community, we can also help you with solutions for better managing your debt. Stop by or call us at 713-674-5778 for assistance.