Ways to build excellent credit

The other day I released an article on how to initially build a credit history. However, as a DSU subscriber, you want the best credit history possible. In order to qualify for the best opportunities that excellent credit can bring you, below we touch on some ways to build excellent credit!

In this 3-5 minute article:

  • Using your credit
  • Length of your credit history
  • Making payments on time
  • Different Types of Credit
  • Credit Inquiries
  • How each of these affect your credit score
  • Ways to build excellent credit

Using Your Credit (30%):

If you don’t use your credit, the credit bureaus aren’t going to know you exist! If all you do is keep a credit card and never put any money on it, it really wont do much good for building your credit history. Optimally, the best amount of your credit to use is below 10%. Some people even say to keep around 3-5% of your limit in use at any given time (this is what I prefer to do, often making sure my balance never exceeds 3%). For example, if your credit limit is $1,000 it would be best to use under $100 for the good results, below $30 for optimal results. At $10,000, $1,000 and $300 respectively.

Length of Credit History (15%):

Another thing that makes up a sizable percentage of your credit history is the length of your open credit accounts. It has been shown that as the time that your accounts have been open increases, so does your credit score. Typically, after 5 years of an open credit account, one can expect to have a pretty firm grounding for their score. Although you have the least amount of control over this determining factor, you can maximize your control by doing things such as getting a credit card as early as possible. If you were to get a credit card at 18, then by 23 years old you would have a pretty solid credit history length, good enough to boost your score. With that score, you might get a preferred interest rate on a home loan!

Making Payments on Time (35%):

This is one of the most obvious ways to build excellent credit. Making sure to pay each of your bills on time plays an enormous role in how your credit score is determined. Credit card companies see you as high risk if you miss payments, because they don’t want to lose the money they lent you! A history of missing payments can do a lot of damage on a credit score – often, even one missed payment can do a lot. DO NOT MISS PAYMENTS!

Different Types of Credit (10%):

Although it may seem odd, having a couple types of credit may help you. Types of credit can include (but are not limited to) a home loan, a loan on a car, or of course a credit card. It’s good to have a couple of different varieties, but not so good to have an enormous amount of them. It’s also best to apply for different credit types over a span of time.

Credit Inquiries (10%):

This one can be overlooked, but it’s best to apply for different credit types over a span of time. When you apply for a bunch of different accounts in a short period, it looks as though you are in desperate need of money, which can look really negative to a credit company. Whenever you apply for a loan or a credit card, it is noted on your credit report, so keeping your inquiries to a minimum is optimal – the less the better.

Concluding Thoughts

The above are the main factors that go into your credit history, and each of the estimated/rough percentages listed depict how much of a role they play in determining your credit score. Using credit responsibly is the easiest way to build excellent credit.

-Zach

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