Creducated Part II: Your Best Bets to Build Great Credit Quickly

After poring and dispelling myths that you absolutely, positively should never listen to when it comes to building credit, it’s time to put a positive spin on things. Good credit is attainable, and it is easier than you may have thought. All it takes is a sound understanding of what the credit powers that we are looking for, and then become the embodiment of that. Let’s begin.

What does good credit say about me?

Having a high credit score (often regarded as above 700) signals to credit unions and other financial institutions (banks, lenders of all sorts) that you’re good for it. It speaks to your past handling of money: How much you spend out of what you have and what you should spend, and more importantly, how you spend it. Every credit reported activity — such as paying credit cards (or not paying them) and repaying debt (or not repaying it) — is counted for or against you in the scorecard. The resulting tally, in turn, makes it simpler or harder for you to secure all sorts of loans and credit cards, to make your financial road smoother.

Make the system work in your favor

In order to maximize your credit score, there are several simple measures you can take that’ll put you ahead of the game. You’ll be placing emphasis on financial responsibility first and foremost, and gradually adding to your reputation. Here are 5 safe, foolproof ways to build your credit:

Get — and stay — informed:

Don’t assume your credit score is sound because you believe you’re doing everything correctly. A credit card you forgot to cancel or an outstanding bill are two examples of long forgotten nuisances that could be hurting your score. That said, you shouldn’t obsessively seek out credit reports to monitor your fluctuation day-to-day. We recommend you sign up for a free credit monitoring service such as Credit Karma; they’ll send you periodic e-mails with your score and let you know what you should pay attention to. As long as you keep an eye out for their e-mail and don’t neglect to improve what they specify, you should be golden. Oh, and keep spending responsibly.

Pay your credit cards often:

Auto-pay is excellent, and keeps you in check. However, paying your credit card debt manually on a weekly basis will go further in ensuring you stay within optimal utilization limits (ideally, you should use around 30% of your credit line).

Space out (or condense) your inquiries:

We get it — some major life events (moving, having a baby) can elicit numerous credit inquiries, back-to-back. You need a new apartment lease, a new phone line, a new car, all at once. The problem is, you need to be smart about the way you shop around for offers. For instance, if you’re interested in signing a new car lease, it’s best if you go to 3 dealerships to apply during a single week. While this will still result in having 3 separate credit inquiries under your SSN, their proximity in time will lead credit bureaus to lump them as you simply “shopping around” for a better deal, and decrease their individual effect on your score. If you stretch out your search for several months, initiating inquiries left and right, this will signal to the credit bureaus that you’re flaky, or worse — that you keep getting rejected, forcing you to continue searching.

Downsize:

One of the most common bad advice people dole out when it comes to building credit, is urging you to apply for as many credit cards as possible. The rationale behind this is that the more bodies you have reporting your solid spending to the credit bureaus, the better. Err, that’s partially true — but to avoid spiraling out of control, or risking credit card fraud, we strongly suggest you limit yourself to 3 credit cards or so, and assign each to a category (one for groceries, one for gas, etc.). This is especially true if you’re just starting out, and your score means that the credit extended to you comes with hefty interest and fees. With 3 credit cards, your behavior will be versatile and reported, but you’ll be less likely to lose control of it all.

Stay ahead of overdraft:

Late payments are but one symptom of overdraft, which in itself can cause you to incur fees and quickly balloon into an even-worse situation. If you have a tendency to slip below zero on your checking account, speak to your bank about instating Overdraft Protection (where money is automatically transferred from your savings), or simply sign up for Change. We’ll soon be introducing the first-of-its-kind Predictive Overdraft Protection: A feature that can accurately foresee when your account will become overdrawn and by how much, then offers you a short-term loan to avoid most of the fees.

You made it through Part II of our Creducated series, and you should have a much firmer grasp on the task ahead of you. Building credit is no small task, but it shouldn’t be. Think of the way new friends establish trust — it is earned, slowly but surely, through consistently dependable behavior. Well, credit bureaus aren’t your friends, and you can’t meet them for beers after work — but they can sure do a lot for you — follow these practices and ensure you stay on their good side.

Originally published at gochange.co on November 15, 2016.

Change develops an Invisible Service that links to bank and credit card accounts, analyzes money transactions and discovers bad financial behavior (symptoms). It then matches those symptoms with behavioral treatments that are executed through smart sms messages (nudges).

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