In order to build a credit history you have to put yourself at risk for destroying that score. It is actually easier to tear your score apart than it is to build it. Here are five tips to help you build a score, some will actually save you money along the way.
- Never carry a balance that is larger than 30% of your credit limit on a credit card. The amount of outstanding balances accounts for 30% of your FICO score.
- If you have multiple credit cards, spread your charges across them. Refer to the first tip for the reasoning behind this strategy.
- Leave old accounts open. 15% of your FICO score is derived from the length of your credit history. Close an old account and that history is shortened immediately, lowering your credit score.
- Check your credit report on a regular basis. Once a year if you are not applying for a loan. If you need a loan in the near future, pull your report to make sure it is accurate in order to maximize the chances that you will be approved.
- Paying off old debt can be harmful. Say a debt went to collection several years ago, it appears as a negative, but inactive account. Pay on it or pay it off and it becomes an active debt again, lowering your credit score more than an inactive account would. This can kill your chances of a loan if you pay just before applying.
Building a credit score is tightrope act, but the interest rates on a car loans with no credit are MUCH higher than those for good credit. You must arm yourself with the right information and make a plan. After developing a plan, stick to it for six months, then pull your credit score. If it is not where you want it to be, then tweak your plan. Repeat the process until you have a clear understanding of what works best for your situation.