6 Tricks to Building Better Credit

Last updated: March 14, 2017

A poor credit rating can impact every aspect of life from the ability to obtain an education to being able to purchase a home. Fortunately, if you have poor credit, there are things that you can do to build better credit so that these things are more attainable.

1. Get a Secured Credit Card

If you have poor credit the chances of being approved for an unsecured credit card are low. Instead, try applying for a secured credit card where you deposit cash up front to “secure” any unpaid balance. This cash deposit is held for the life of the secured credit card account and you are expected to make monthly payments to cover any purchases you make using the card.

Secured credit cards pose no risk to card issuers and regularly report to credit bureaus to help build your good credit.

2. Practice Good Spending Habits

This seems like a no-brainer, but if you have poor credit then it’s likely something you have trouble with. Practice good spending habits from now on by only purchasing items on credit that you can already afford to purchase with cash and never purchase wants on credit, only purchase needs. When you do purchase items on credit, make sure that you pay off these items as soon as your monthly payment is due.

3. Track Your Credit

Use a free credit tracking service like CreditKarma.com to track your credit on a regular basis. Stay on top of any debts or collections accounts on your report by verifying each one. If able, pay off the account or make a payment arrangement. If negative accounts or debts are old (7 to 10 years depending on the account type) you can request for the account to be removed from your credit report completely.

4. Use Auto-Pay

Sometimes bad credit can simply be the result of being too forgetful or too busy to make payments on time. If you fall into either of these categories set up auto-pay services for your accounts to make sure that you pay on time every time!

5. Maintain a Low Debt to Income Ratio

You always want to spend less on debt than you make. This ratio of money earned to money spent is what is referred to as the debt to income ratio. For example, if you make $1000 a month and $500 of that goes towards your debts such as rent or credit card payments, your debt to income ratio is 50%. Lenders use your debt to income ratio to determine how able you are to pay back a loan (such as a mortgage or credit card balance). The lower a debt to income ratio the better, but it is always advised to keep this number below 43%. You can lower your debt to income ratio by paying off some of your existing debt!

6. Know Yourself

One of the most important aspects of managing your credit and building a higher credit score is to know yourself! If you know that you tend to overspend, put measures into place to stop this from happening. For example, shop online and pick up groceries in store to avoid impulse purchases, don’t take credit cards with you when you go out to the store so you cannot run up credit card debt that you can’t pay off, and learn to say no to credit card offers you shouldn’t accept!