Good credit helps you qualify for loans and reduce your borrowing costs — helping you make the most of your income and create the life you want. Here are five keys to help build good credit — and ways to check your current score.
1. Pay your Bills on time
Paying at least the minimum amount due on time each month is one of the best ways to improve your credit score. Payment history makes up approximately 35% of your FICO® Credit Score.
Tip: Set up automatic payments or use online bill pay. Consider setting up alerts for when your payments are due.
2. Don’t max out accounts
Maxing out your credit lines can hurt your credit score. Keeping your revolving balances — what you owe — at less than 30% of your available credit may help maximize your score.
Tip: Check your card activity frequently, so you know if you’re getting close to your ceiling. Creating credit card alerts can help you avoid maxing out your cards or missing payments.
3. Manage your debt-to-income ratio
Debt-to-income ratio is the percentage of income you spend on minimum debt payments each month, including your mortgage or rent. Lenders use it to assess your ability to pay back any new debt; the lower it is, the better you look to them. Aim for a ratio of 35% or less.
Tip: Use our online calculator to check your debt-to-income ratio.
4. Monitor your credit score and reports
By monitoring your credit reports, you’ll be able to catch any errors or fraud, and correct them before they affect your credit history or credit score. Having a higher credit score can make access to credit easier and more affordable.
Tip: For your credit reports: Go to AnnualCreditReport.com. Free reports from the three major credit bureaus are available weekly through April 2021 and annually thereafter. (Requesting your reports won’t affect your credit score.)
5. Think twice before closing accounts
Closing credit accounts may reduce the total credit available to you. That can hurt your credit score by increasing your credit utilization ratio — what you owe as a percentage of your available credit. Keeping accounts active will also help build the length of your credit file, which makes up 15% of your FICO® Credit Score.
Tip: If you’re worried about avoiding the temptation to take on too much debt, then closing an account might be the best course of action for you. Otherwise, consider keeping accounts open with a good payment history and a low or zero balance.
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Blackrock Investments and Finance, Inc.
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