How to Build A Better Credit Score

Creating a good credit score seems to be full of Catch 22s:

  • You need a credit card to establish a credit history but how do you get a credit card without a credit history? (Try a secured card)
  • People want a credit report before giving you a loan but don’t credit inquiries hurt my credit score? (It depends- a one time period of inquiry won’t hurt but frequent inquiries implies you’re a habitual shopper)
  • You build credit by making payments on your account, but should you also carry a regular balance? (Actually, according to MSN Money, this one is a myth!)

At SCC we take a look at the credit of all of our clients so we can better understand where they are financially and identify strategies build better scores which in turn improves their chances of getting a microloan. Our partner the Manatee Community Federal Credit Union prefers to see scores in the 650s, but they are always willing to listen to extenuating cases.

Could your credit score use a little help? Here are some tips.

  1. Get a credit card: Not always as easy as it sounds. If you keep getting turned down due to bad scores or lack of a history ask about something called a “secured credit line”. This means that you make a deposit for the credit limit you want that serves as collateral. It’s low risk for both you and the bank because if something happens and you’re unable to make a payment the money is already set aside to cover you.
  2. Automate Payments: Some expenses you know you will have every month- water bill, gym membership, Netfllix. GetRichSlowly.org suggested that these payments be put on a credit card and then your checking account be set to automatically pay off these bills. So your $8 Netflix bill is automatically charged to your card, $8 is automatically transferred to pay the bill and you automatically get a better credit score without even thinking about it.
  3. Distribute Your Balances: Bankrate.com recommends spreading your charges (if they must be made) or transferring balances among different cards. That way instead of one card that looks like it’s almost maxed out you have several cards at a lower percentage of their credit limit. The magic number is 30%. Use no more than a third of your available credit and you should be fine.
  4. Pay down your card: This is sometimes the most difficult part of improving credit. After all, if it were so easy at the moment to make payments on time you wouldn’t be in the credit situation you are in the first place. The hard fact is that your credit won’t get any better until you prove to banks you can handle the debt you already have. This means paying down- not just paying the minimum payment- the balance of your card as much as you can, as quickly as you can. As I said, this isn’t easy, which is why you might have to rely on some other ways to improve your score.
  5. Don’t cancel unused accounts: This is one of those Catch22s I was talking about. A portion of your credit score comes from having available credit. So even if you don’t use your card (and if you’re credit balance is out of control, it’s highly advisable that you don’t) keep the account open and improve your score by making regular payments.    
  6. Put some diversity in your credit record.  Student loans, cash advance loans, car loans, retail store loans, revolving credit, etc. all can enhance your credit score when managed properly.

 Building credit is tricky to navigate. Sometimes it helps just to sit down with someone and talk about your options. Our business advisor John Clement is here to help with personalized advice on credit building. Ready to take control of your financial situation? Call 941-744-2666 ext. 2 to set up an appointment today.

For more information on good credit practices visit http://www.handsonbanking.org/en/.

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