Building or Maintaining Your Credit
Building and maintaining good credit is essential for financial well-being. It opens doors to favorable loan terms, better insurance rates, and even improves employment prospects in certain fields. The path to excellent credit involves understanding key strategies and implementing them consistently over time.
Understanding what influences your credit score is the first step toward improvement. Payment history has the greatest impact, accounting for about 35% of your score. Credit utilization—the percentage of available credit you're using—follows closely at 30%. The length of your credit history, your credit mix, and new credit inquiries make up the remaining factors that determine your overall score.
For those starting with no credit or a thin credit history, secured credit cards offer an entry point. These cards require a security deposit that typically becomes your credit limit. By making small purchases and paying them off in full each month, you demonstrate responsible credit management.
Credit-builder loans offer another valuable approach, particularly for individuals wary of credit cards. These specialized loans place your borrowed funds into a locked savings account while you make regular monthly payments. Only after completing all payments do you gain access to the money. Each on-time payment gets reported to credit bureaus, gradually strengthening your credit profile.
Becoming an authorized user on a family member's or trusted friend's credit card can accelerate your credit-building journey. Their positive payment history can benefit your credit score, provided their card issuer reports authorized user activity to credit bureaus.
Many people overlook the potential credit benefits of regular bill payments. Services like Experian RentBureau allow rent payments to appear on your credit report, while Experian Boost can incorporate utility and phone bill payment history into your credit profile. These everyday obligations can contribute to credit building when managed responsibly.
While building credit, maintaining healthy financial habits is crucial. Always pay bills on time, as even one late payment can significantly damage your score. Keep credit utilization below 30% of available credit, ideally closer to 10%. Avoid opening multiple new accounts simultaneously, as this can trigger concerns about financial distress.
Regularly monitoring your credit report allows you to track progress and identify potential errors. Federal law entitles you to free annual reports from each major bureau through AnnualCreditReport.com.
Building credit requires patience and consistency. While significant improvements may take 6-12 months, maintaining good habits will eventually lead to excellent credit. Remember that credit building is a marathon, not a sprint. Making small, consistent steps in the right direction will establish a solid foundation for your financial future and open doors to better opportunities and terms when you need to borrow money.
Check Your Credit Publication: Understanding Your Credit Report
Join the Johnson County K-State Research and Extension Check Your Credit email education program: https://tinyurl.com/JoCoCYC
Joy Miller, Family and Community Wellness Extension Agent, May 2025