Our society relies heavily on credit to make major purchases. Credit can even be used for smaller purchases. Even phone companies check your credit when you want to start phone service. Plus, prospective employers sometimes check your credit as well. It’s never too soon to begin building your credit.

It can take several month or even a few years to establish a good credit score. It’s smart to establish an excellent credit history before you need it. Learn about credit and how you can use it effectively to build a high credit score.

What’s Important for a Great Credit Score?

There are three primary components of a credit score:

1. Your payment history. Do you pay your bills on time? Then you’re perfect. Late payments and collection actions seriously damage your credit.
2. The length of your credit history. If you’ve only had credit for a couple of months, your score will be lower than if you’ve been using credit for several years, assuming everything else is equal. That’s why it’s important to get started today.
3. Your utilization ratio. If your credit card limit is $2,000 and your balance is $1,000, your utilization ratio is 50%. Always keep your utilization below 35%. Any higher than this will result in a lower credit score.

By keeping these factors in mind, you’ll can figure out how to build a great credit score. Acquire credit, make your payments on time, and keep your credit card balances low. It’s also helpful to have a good mix of credit.

How You Can Build Your Credit

Build your credit successfully from scratch with these strategies:

1. Open a bank account if you don’t already have one. This will help you with your local bank. When you’re a reliable customer, it will help in the future. Remember that your local bank has a credit card program. They also provide other types of lending.

• While a bank account won’t affect your credit score, it can help you to acquire credit with your bank.

2. Ask your bank for a secured loan. Ask for a loan against your savings account balance. You can easily borrow 90% of your current balance. Banks love to make these loans because they can’t lose money. If you default, they’ll take the money out of your account themselves.

• Take the money you’ve borrowed and use this same money to pay off the loan. Make a few payments and then pay off the full amount.

3. Acquire two credit cards. This can be very easy if you’re a college student. Fill out a few credit card applications and see what happens. If you can’t acquire a conventional credit card, look into secured credit cards. After using a secured card responsibly for several months, you should be able to get a conventional card.

• Avoid getting two of the same type of card. Mix it up. Get a Visa or MasterCard and an American Express or store card.
• Use the cards regularly, but only for small purchases. Be sure to pay your bill on time and avoid carrying a balance. Each month, pay off what you’ve charged.

4. Pay all of your bills on time. Thirty-five percent of your credit score is related to your payment history. Late payments can be recorded with the credit bureaus and damage your budding credit score. This includes your utilities and even possibly your rent. Sit down once a week and pay your bills so you can keep a handle on them.

Building a good credit score requires time and a few simple steps. It’s important to be responsible and pay all of your bills on time. Avoid making unnecessary purchases. The best time to begin building credit is before you need it. A well-established credit history can make your financial life easier.

Silvana Jimenez