Building (or improving) your credit
Wednesday, 7 August 2019
Your credit score can have a big impact on your life. It can affect your ability to buy a home or car, rent an apartment, open a bank account and even get a job.
Which is why it's essential to understand how to establish, build and protect your credit— and also how to improve it if necessary. Here are some tips and ideas:
Establishing and building credit
1. Get a secured credit card or co-signer
Many banks have secured credit cards designed to help people establish or improve their credit. BBVA offers a secured card, its Optimizer Credit Card1 , which is backed by a savings account.
If you cannot qualify for a secured card, consider getting a credit card with a co-signer, such as a parent. Becoming an authorized user on a parent's card can also be an option.
While it doesn't impact your credit score, BBVA's ClearSpend Prepaid Visa® Card2 is a reloadable pre-paid card that can help you learn to budget, keep track of your spending, and avoid overdraft charges.
2. Manage your credit accounts very carefully
Many people can get credit cards, but they run into trouble when it comes to managing their spending. Once you have a card, try not to overspend and do your best to pay your balance off on time each month.
3. Minimize credit utilization
In other words, don't spend up to your credit limit. This first card is a test run, and if you max it out right away, that's not really demonstrating responsible credit management. Again, try to pay your balance off each month, and if you can't, keep your balance as close to zero as possible.
So, what is a good credit score?
First of all, your credit score, which can also be referred to as your FICO® score, is a number used to reflect your creditworthiness. Today, three companies, Experian™, TransUnion®, and Equifax®, compile and report U.S. consumer credit scores, which can range from 300 to 850. Typically, under 600 is considered “deficient," while 720 and up is considered an “excellent" credit score.
In 2018, the average U.S. consumer FICO® score reached 700, the highest it's been in 15 years. Even still, that means a large percentage of U.S. consumers have credit scores that could negatively impact their ability to borrow money.
So, it's probably fair to say many Americans are — or should consider — actively working to improve their credit score. If you're one of the people working to improve your credit score, here are some tips that may help:
1. Pay down card balances
Because your credit score is based partly on how much of your available credit is being used, you can potentially improve your credit score by paying them down as much as possible. Most credit bureaus consider a ratio of 30 percent or lower to be good. Try to limit new charges, and if possible, make more than the minimum monthly payment on all of your cards each month.
2. Check your credit report for mistakes
Under federal law, you are entitled to one free credit report from each of the three reporting bureaus annually. When you get your reports, look carefully for mistakes. If you believe information on your report is incorrect, contact the credit bureau and the company that was the source of the information. (It's also a great opportunity to check and ensure no one is using your social security number to secure credit under your name.) It's a good idea to take a look at your credit reports annually even if you're not working on improving your score in order to protect yourself from potentially costly mistakes.
3. Review your credit report for errors and track changes
By using a service such as Upturn3, you can verify that the information in your credit report is accurate and regularly monitor your credit score. This free online tool can also make it easier and faster to dispute and correct any inaccuracies that may show up on your credit report.
4. Realize there's no quick fix
Because credit scores are so important, many people find themselves desperate to improve their scores and may look for quick fixes. And there are many companies that will promise to repair your credit for a fee — often hundreds of dollars. However, there are very few ways a third-party provider can change or “fix" your credit score that you couldn't do on your own.
A good credit score can take some time to establish, can be damaged quickly and can take a while to repair. Having a solid understanding of how to properly manage credit can go a long way toward helping you protect and improve your score.
1 All credit cards are subject to approval, including credit approval.
2 The ClearSpend Card is subject to approval, including fraud prevention measures.
3 Upturn is a registered trademark of Upturn Financial, Inc. and is a member of the BBVA Group.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA USA does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards.
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