When you want to build a credit line, you might want to double down on that urge to go out and shop when you initially get that credit approval. This is because maxing out your credit means higher monthly balances and interest charges. Then before you know it, you’ll start falling behind and destroy your squeaky-clean credit record. By following these top tips instead, you’ll be on your way to building a strong line of credit and helping to boost your overall credit score.
Here are the top five tips to build a credit line:
5. Check Your Report
The majority of lenders — credit unions, banks, and credit card companies — report your line of credit to the credit bureaus. Always ask upfront before signing your life away, though; don’t just assume everything is being reported. Check your credit report several times throughout the year, but keep in mind that it may take several months for your line of credit to show up on your report.
By ensuring that your payments and balances are being reported accurately, you’ll be able to keep your interest rates as low as possible. Plus, good marks on your credit will help you out when you want to apply for another line of credit.
Apart from helping you to build a credit line, checking your report also helps you uncover mistakes on your report. For instance, if your report includes information from someone else’s report or contains other inaccuracies, it may affect your credit and take weeks to correct. You don’t want to delay resolving these issues, especially if you’ll be applying for loans anytime soon.
It also allows you to prevent and stop identity theft, so if someone else has been using your Social Security number to apply for credit or make purchases with your payment information, you may not notice the signs unless you take a close look at your credit reports.
“Some of these transactions are very small,” says Richard Rosso, a certified financial planner at Clarity Financial in Houston. “They fly under the radar. Then you get hit with a big one.”
If you notice an unfamiliar account or inquiry, call the issuer and find out how it ended up on your report. If necessary, file an identity theft report and freeze or place fraud alerts on your credit reports to prevent further damage.
All these actions contribute positively to helping you build a credit line that shows credit companies and lenders that you are responsible in terms of your finances.
4. Pay Extra
Making your minimum payment on time is very important, especially if you want to build a credit line because by making the minimum payment, your credit score improves.
However, if you can pay more than your minimum, you should pay it for several reasons.
First, paying more than your normal minimum on your credit card, helps you chip away at your overall balance, which improves your credit utilization and raises your score.
Also, if you’re still using your cards for new purchases, paying more than the minimum is important because you’re not letting the debt pile up. If possible, you should pay at least as much as you’ve charged in that particular month and as much as you can afford on top of that so your overall debt will continue to drop.
Unless you have some kind of introductory special with a new credit card, odds are you’re paying interest. While making your minimum on-time payments surely helps boost your credit ranking, you’ll be paying out the nose in interest. Pay a little extra each month—even if it’s only $50. That doesn’t sound like much, but by the end of the year, those additional payments add up to $600—enough to make a decent dent in the interest you have to pay to your lender.
So the bottom line is by paying extra than your minimum, ideally, you’ll get to the point where you don’t need to carry a credit card balance at all. This will you build a credit line that is not only financially healthy but also attractive to lenders, paving the way for you to get more loans.
3. Be Honest
Life is full of ups and downs, and everyone struggles at times. Be honest with your lender and communicate if you’re going through a hard time. Losing a job going through a divorce or the death of a family member can put you into financial hardship.
Before you start getting demanding letters and countless phone calls, take the initiative to talk to your lender first. In some cases, you might be allowed to defer payment for a month or so—without getting any negative credit marks — to help you get on your feet.
2. Don’t Abuse It
Just because you get a big line of credit — whether it’s for a car, a new house, or a credit card — doesn’t mean you should abuse it.
Qualifying for a credit line and being able to afford it are two different things. Sure, a lender may approve you for a big loan, but you don’t have to take it all. Look at your income and take out only what you can afford to pay each month.
If you’re getting a new credit card, use it for purchases you make regularly, like gas and groceries. Otherwise, if you go on a spending spree, you’ll get a surprisingly big bill the following month that you may have a hard time paying.
1. Pay on Time
The most obvious way to build a line of credit is to pay on time. Meeting your scheduled due dates shows your lender that you can be trusted, And maybe later on down the line, it’ll be easier to refinance or get a bigger line of credit.
Ideally, you should pay a couple of days early. If you know your bill is due on the first day of each month, don’t wait until that day to pay it—sometimes it takes several days to post to your account, resulting in a late payment.