Tips to build your credit

Strategies for credit growth

Your credit score reflects your financial journey, revealing opportunities for improvement. Understanding how credit scores are calculated can help you strategically manage your credit. While building credit takes time, consistently working to improve your score can lead to better financing terms, such as lower rates on loans and credit cards. Let's explore 8 tips to build your credit.

1. Use a credit card

A credit card is an effective tool to build credit since the amount owed is a key factor in credit score calculations. Responsible and consistent use of a credit card can help improve your credit score over time.

2. Pay your bills on time

Payment history significantly impacts your credit score. Make payments on time to avoid negative consequences and late fees. Consider setting up automatic payments to ensure consistent, timely payments.

3. Become an authorized user

If you have a trusted family member or friend with good credit, ask to be added as an authorized user on their account. When the primary cardholder has a good credit history and makes on-time payments, this can boost your score. This is a great option for those new to building credit.

4. Manage your credit utilization

It is recommended to keep your credit utilization below 30%, as exceeding that limit can negatively impact your credit score. Staying within this threshold shows credit bureaus that you can manage credit responsibly and avoid overspending. To maintain a low credit utilization ratio and a higher credit limit, pay the card balance on the day you make a purchase or as soon as possible.

5. Increase your credit limit

A credit limit increase may be available if your income increases, your credit score improves, or you pay off debts. Increasing your limit can lower your credit utilization if spending habits stay the same. However, requesting an increase may result in a hard inquiry, potentially lowering your credit score temporarily.

6. Diversify your credit portfolio

Maintaining a variety of credit accounts, such as credit cards, auto loans, and mortgage loans, showcases your ability to manage different forms of credit responsibly. Lenders see this diverse credit mix as a favorable sign of financial maturity, indicating that you are a reliable borrower capable of handling various lending terms and payment structures.

7. Strategically apply for credit lines

Be cautious when applying for multiple credit lines within a short timeframe. Hard inquiries can lower your credit score, and numerous applications may signal financial distress to lenders. Each application can temporarily reduce your score and increase your credit utilization, so it's best to space out credit applications and apply for new lines only when necessary.

8. Avoid closing old accounts

All your credit lines contribute to your total available credit, making it easier to maintain a lower credit utilization ratio. Even if you have unused or infrequently used credit cards, consider keeping them open, as they still count toward this total. Additionally, your credit history impacts your score, so closing older lines could shorten your credit history and negatively affect your score.

Let’s review:

There are several strategies for building and maintaining a healthy credit score. By understanding how credit scores are calculated and identifying areas for improvement, you can make informed decisions that positively impact your financial future. Tools like Simmons Bank's Credit Score Manager can help you keep track of your progress.

This article is for educational purposes only and is not intended to be financial, investment, legal, or tax advice. Always consult a qualified professional about your personal situation.