Building a good credit score in the United States is essential to obtain better conditions on loans, mortgages, rentals and even some jobs. This guide provides detailed steps to help you establish and maintain a good credit score.
What is Credit Score?
The credit score is a number that represents a person's solvency, based on their credit history. In the United States, the three main credit bureaus – Equifax, Experian and TransUnion – are responsible for calculating these scores. The credit score generally ranges from 300 to 850, with a score above 700 being considered good, and above 800 being excellent.
Get a Credit Card
- Credit Cards for Beginners: If you're new to the credit system, start with a secured credit card, which requires a security deposit equal to your credit limit. Alternatively, apply for a student credit card or a low-limit credit card.
- Use in Moderation: Use your credit card for small purchases and pay the balance in full every month to avoid interest and demonstrate financial responsibility.
Pay Your Bills on Time
- Payment History: Payment history is the most important factor in calculating your credit score, representing around 35% of your score. Pay all bills on time, including credit cards, student loans, utility bills, and any other debt.
- Automate Your Payments: Set up automatic payments or reminders to ensure you never miss a due date.
Keep Your Credit Card Balance Low
- Credit Utilization Rate: Keep your credit utilization ratio (the percentage of your credit limit used) below 30%. Ideally, aim to keep this rate below 10% to maximize your score.
- Advance Payments: Consider making more than one payment per month to keep your balance low.
Diversify Your Credit Types
- Revolving Credit and Installment Credit: Having a combination of different types of credit, such as credit cards (revolving credit) and loans (installment credit), can improve your score.
- Responsible Lending: If you need a loan for a car or education, choose a loan that you can comfortably manage and make timely payments.
Limit New Credit Requests
- Hard Inquiries: Every time you apply for credit, a hard inquiry is recorded on your credit report, which can temporarily lower your score. Avoid applying for multiple credit cards or loans in a short period of time.
- Soft Inquiries: Checking your own credit score or being pre-approved for credit offers generates a soft inquiry, which does not affect your score.
Keep Old Accounts Open
- Length of Credit History: The age of your credit history represents about 15% of your credit score. Keeping old accounts open can help increase the average age of your credit accounts.
- Responsible Use: Even if you no longer use an old credit card, keeping it open and making a small purchase occasionally can be beneficial.
Monitor Your Credit Report
- Check Regularly: Get a free copy of your credit report from each of the three credit bureaus once a year at AnnualCreditReport.com.
- Dispute Errors: Check your credit report for errors and dispute any incorrect information with the relevant credit bureau.
Building and maintaining a good credit score in the United States requires time, patience and responsible financial habits. By following the steps above, you can establish a solid credit history, which will open doors to better financial opportunities in the future. Remember, consistency is key – continually practice good credit practices to see improvements in your score over time.
