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  • Best Ways To Build Credit?

    Okay, I know this is a more basic question...but the forums gets a lot of lurkers, so I'm asking partly for their benefit and partly because I just did a review of ways to improve ones credit score for an article I'm working on.

    What do you guys find has been the best way to build good credit?
    james.c.hendrickson@gmail.com
    202.468.6043

  • #2
    1) Pay all of your bills on time/early -- never late.
    2) Don't carry high debt balances... Desirably, pay balances in full, and never carry a balance month to month.
    3) Repeat steps 1 & 2 for 10-15 years. Long-term good behavior with debt is the only way to get a high credit score.

    Note: The above strategy for a high credit score (780+) is radically different than how you repair bad credit. To repair credit, you need to:
    A) Get current on all of your bills
    B) Repay or settle old, bad debts (stuff in collections)
    ​​​​​​C) Pay down/pay off all of your debts
    D) Avoid accruing more debts at all costs
    E) Follow steps 1-3 above.

    Alternately, just don't bother worrying about your credit score, and just avoid debt like the plague. High credit scores tend to mean you've paid alot of money in interest (mortgage, auto, credit card, student loans, etc). I'd just as soon prefer the "100% cash down" strategy. No payments, no interest, just financial security. Yeah, I like the sound of that.
    Last edited by kork13; 03-05-2019, 08:18 PM.
    "Praestantia per minutus" ... "Acta non verba"

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    • #3
      My credit is excellent in spite of the fact that I've never made it my primary goal to have good credit.
      I think that having a good credit score as your primary financial goal is misguided.
      If you have good financial habits, don't pay your bills late, and don't have too much leverage, then your credit score is naturally going to rise and be healthy.
      Brian

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      • #4
        Originally posted by bjl584 View Post
        My credit is excellent in spite of the fact that I've never made it my primary goal to have good credit.
        I think that having a good credit score as your primary financial goal is misguided.
        If you have good financial habits, don't pay your bills late, and don't have too much leverage, then your credit score is naturally going to rise and be healthy.
        My thoughts also.
        Never worried about my credit score.

        Comment


        • #5
          Good credit. Hmm let's see here.

          Rule number 1. Pay bills on time.

          Rule number 2. Don't forget rule number 1.
          How can you have any pudding if you don't eat your meat?

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          • #6
            Are you asking about people who are young or new to the US and have no established credit record? Or people who have a poor credit rating and are trying to improve it?

            Comment


            • #7
              Hi, improving credit score is a bit easy when maintaining your monthly financial budget perfectly, paying your utility bills, grocery bills or any debt repayments on time without fail. There are high chances to improve your score when going for a little loan which is affordable to repay on time so that it gives a genuine trust impact on the credit file.

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              • #8
                I agree with the others. Pay your bills on time. Don't carry a ton of debt. Keep your utilization ratio low.

                One of the biggest factors, which you can't influence, is time. The longer you maintain good habits, the better your credit will be.

                And don't let the tail wag the dog. Don't do things specifically to try to boost your score. Just do the right things and your score will be just fine. Don't borrow money specifically to boost your credit score.
                Steve

                * Despite the high cost of living, it remains very popular.
                * Why should I pay for my daughter's education when she already knows everything?
                * There are no shortcuts to anywhere worth going.

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                • #9
                  It would make a difference if you are trying to build from nothing as opposed trying to fix a mess.

                  The credit factors that effect a certain persons score are generally laid out in any place you can access your score. debt to income / on time payments etc.
                  I would always check your record with the yearly free report to make sure items are correct on it.

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                  • #10
                    Originally posted by bjl584 View Post
                    My credit is excellent in spite of the fact that I've never made it my primary goal to have good credit.
                    I think that having a good credit score as your primary financial goal is misguided.
                    If you have good financial habits, don't pay your bills late, and don't have too much leverage, then your credit score is naturally going to rise and be healthy.
                    I think that is exactly right. Practice good financial management and a high credit score follows automatically.

                    Comment


                    • #11
                      Originally posted by Smallsteps View Post
                      I would always check your record with the yearly free report to make sure items are correct on it.
                      This is a great point and worth highlighting. Many credit reports contain errors so sometimes your score can be bad because of a mistake. Check your report and if you find something that isn't right or doesn't belong to you, follow the steps to contest it and get it removed.
                      Steve

                      * Despite the high cost of living, it remains very popular.
                      * Why should I pay for my daughter's education when she already knows everything?
                      * There are no shortcuts to anywhere worth going.

                      Comment


                      • #12
                        Originally posted by james.hendrickson View Post
                        Okay, I know this is a more basic question...but the forums gets a lot of lurkers, so I'm asking partly for their benefit and partly because I just did a review of ways to improve ones credit score for an article I'm working on.

                        What do you guys find has been the best way to build good credit?
                        I am in the process of rebuilding credit after a divorce in 2012 with several delinquent payments and a house short sale, In 2017 my credit score was about 450 before I started the rebuild. I am between 550 and 650 now as not every credit bureau is showing same information.

                        1) If you have delinquent debt, remove this from credit report. Likely paying it off or declaring bankruptcy are the two best choices.
                        2) Open new credit accounts (for example with a 450 score, no account was open, once I opened new accounts, the score went up)- more on this below.
                        3) Pay off balances on the credit accounts each month
                        4) monitor the credit reports. Examples- I have a new gas card (see item #2) but it is not showing up on credit karma, but it did show up on my transunion report when I checked their website.
                        5) Have a 7 year plan- most closed accounts drop off credit report after 7 years- I need to verify this is true (Nov 2012 and Dec 2013 are dates of some closed accounts on my report), so I will know more about this at end of year. Some bureaus are showing these as open accounts, some show as closed (credit karma shows as closed).

                        Here is the 7 year plan I started in 2018
                        1) remove delinquent accounts by paying them off- this includes collection accounts and anything reported as delinquent.
                        2) Open new credit accounts wherever possible (I have some logic to this, in general more are better). The score drops as I open accounts and my avg length of credit is between 11-15 months. In 4 years this will help, short term it drops.
                        3) The goal is 4 open credit cards with 4 years of history with me with no annual fee.
                        3a) it is OK to pay an annual fee for a few years when rebuilding as its better to have an open account than no account at all
                        3b) once offers come in for no annual fee cards, take that offer, but remember don't close the annual fee accounts until you've had the other card open for more than 18 months.
                        4) To be able to qualify for a mortgage, the credit tiers are 650-680, 680-720 and 720+. Basically any score above 720 is wasted (the bank said they had no better rate for an 850 credit score than a 720 credit score).
                        5) There are amazon like services which sell goods and give you credit, and report to credit bureaus, these are your friend- no annual fee, $0 balance on report, easy to open for 4 years while building score (fingerhut is one I have used)


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                        • #13
                          Originally posted by scfr View Post
                          Are you asking about people who are young or new to the US and have no established credit record? Or people who have a poor credit rating and are trying to improve it?
                          I think the guidelines to build credit would be similar (see previous post of mine).

                          Comment


                          • #14
                            Originally posted by disneysteve View Post

                            This is a great point and worth highlighting. Many credit reports contain errors so sometimes your score can be bad because of a mistake. Check your report and if you find something that isn't right or doesn't belong to you, follow the steps to contest it and get it removed.
                            There are errors which can be corrected, and errors which "appear" impossible to correct
                            there are errors which NEED to be corrected, and errors which don't add much value

                            Here is a story, I have told it before
                            Married first time in 2002, ex wife #1 (ew1) was added to my longest credit card/highest limit card. We used the card for gas groceries and small things. The money was always in budget to pay it off.
                            she was paying minimum balance on the card (she did the checkbook). She told me whenever I asked the card was paid off each month. I never saw the bill.
                            EW1 had changed the address on the account to her mother's apartment (a new address...)

                            I found the Bill at the exact wrong time in front of a few too many people in 2008.
                            I paid the balance the next day (it was about $25,000)
                            I then took steps to control more- likely ineffective steps, but the address was now on my credit report
                            This happened one more time, where she did not pay off the balance each month, and I took more ineffective steps to control.

                            Divorced EW1 in 2012.
                            Many bills were forwarded to her address which were joint accounts, so banks now have a second address for me I never lived at

                            In 2015 There was an error in my taxes. IRS withheld the return, and I did not receive the return until April 2019. I had most i's dotted and t's crossed at end of 2018. I had to answer some security questions with IRS, and I had to admit I lived at both addresses above to pass the "security test" of the IRS.
                            First, how does the IRS get to pull the info from the credit report? I NEVER filed taxes from either address
                            Second, if you go to credit bureaus to fix this, they say they get the info from the banks, it is not their info
                            Third, the banks will not change their info
                            fourth- because many banks had this address for me (her car, joint loan; first mortgage, second mortgage, one credit card since closed) the information according to credit bureau algorithms say I lived there (4 bills at one address means I must have lived there).

                            How important is this? Probably important, but not critical. Not worth my time to correct at this point. It won't change my score, but the info at the credit bureaus is not accurate to the life I have lived.
                            Last edited by jiM_Mi; 07-30-2019, 06:02 PM.

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                            • #15
                              Originally posted by bjl584 View Post
                              My credit is excellent in spite of the fact that I've never made it my primary goal to have good credit.
                              I think that having a good credit score as your primary financial goal is misguided.
                              If you have good financial habits, don't pay your bills late, and don't have too much leverage, then your credit score is naturally going to rise and be healthy.
                              Same boat. My rule of thumb was to always pay CC in full at the end of each month. It kills me to pay interest. I have four cards (two main ones for use) and my oldest has got to be about 19 years old.

                              My favorite debate with friends is when they tell me its better to keep a small balance each month. I always reply with "I must be doing something wrong paying it in full each month then, as I only have a score of 800."
                              "I'd buy that for a dollar!"

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