Credit Building Strategies for a Strong Financial Future

Building a strong credit score is absolutely critical for navigating your financial future. After exploring foundational strategies for effective credit building in previous blogs  we want to spend some time with you to dive deeper into specific, actionable steps you can take to further enhance your credit score, complete with practical examples. Let’s dive in!

Expanding Your Credit Capacity Carefully

While you always want to borrow below your means, thoughtfully expanding your credit can be a great way to either extend the length of your credit history or to decrease your credit utilization. There are two great strategies you can use for this.

• Requesting a higher credit limit: If you’ve maintained a good payment history for the duration of your account with a specific credit card, you can consider asking the issuer for a credit limit increase. The intention here is not to spend more on your credit card but, rather, increase the total credit available to you which means your regular spending will not impact credit utilization as significantly.For instance, if you typically spend $2,000 a month on your credit card and your credit limit is $5,000 then your credit utilization is 40%. If your issuer increases your credit limit to $8,000 but, you don’t change your spending, your utilization will drop to 25%. A lower credit utilization will then increase your overall credit score.
• Become an Authorized User: Being added as an authorized user on the credit card account of a relative or a friend can be a strategic move, especially if the primary account holder has excellent credit history. If the account holder has a strong history of on-time payments or low credit utilization, this will be a benefit to your credit score.You must be careful when using this strategy. You should only ever become an authorized user to an account holder that you trust. The most common example is your parents. While being an authorized user on an account can be a benefit to your credit score, if they miss their payments, this can also be a detriment to your score.

Diversify Your Credit

• Mix Your Credit Types: Demonstrating your ability to manage different types of credit could positively impact your score. If you only have credit cards, consider getting a small installment loan. For example, a $1,000 personal loan repaid over 12 months can show your ability to handle fixed payments. In addition, any type of car loan or home mortgage can go a long way towards positively impacting your credit.
• Use a Co-Signer to Gain Additional Credit: If you are having a difficult time obtaining credit for diversification, a co-signer with strong credit history can help. If you want a car loan but don’t qualify on your own, having a family member as a co-signer can help you secure the loan and build credit as payments are made on time.

Proactive Credit Management

• Regularly Review Your Credit Report: Reviewing your credit score at least once every six months is a critical maintenance activity for ensuring that your credit score is on the right track. You can access a free annual credit report from each of the three major bureaus at AnnualCreditReport.com. The purpose of this is to make sure your score is on the right track but also to check for errors or any incorrectly reported late payments or fraudulent accounts. If you spot an issue, you can file a dispute immediately to get it corrected.
• Negotiate and Settle Old Debts: If you have delinquent accounts, you can often directly negotiate with the creditor. For example, if you owe $2,000 on an old credit card you haven’t been able to pay. You should discuss with the creditor how to settle the amount. Oftentimes creditors will work with you to either discount the amount owned to be paid as a lump sum or develop more favorable payment terms to make sure you can feasibly pay the money back.

Maintain Diligence in Your Credit Activities

• Automate Payments: To avoid late payments, make sure you set up automatic payments for at least the minimum amount due on your credit cards and loans. Consistent, on-time payments are the most influential factor in your calculation of credit.
• Limit Hard Inquiries: When you apply for credit, a hard inquiry is made, which can lower your score. Limit applications for new credit to when absolutely necessary. For example, if you’re looking around for a car loan, try to apply to several loans within a 14 day period. If the inquiries are within that period, it will count only as one inquiry. Every hard inquiry made on your account will reduce your overall credit score.

Stay Committed and Patient

Improving your credit doesn’t happen overnight. By implementing these strategies consistently and monitoring your overall progress, you’ll build a strong credit history that will serve you well in securing better loans and lower insurance premiums. A better score could improve your access and financial flexibility.

At Hickory Point Bank, we’re here to support you every step of the way on your journey to excellent credit health. By taking these detailed strategies into consideration, you may not only improve your credit score but also develop a stronger peace of mind that you are working towards building stronger financial health.