Get a credit card and keep it at 10% balance to limit ratio to maximize scores.
If your card limit is $500, the best balance to keep it at is $50 to maximize your credit scores. Credit cards are extremely important and account for 30% of your credit score. Without an active credit card you missing a gigantic portion of your score. At 0-7% balance to limit ratio, it is bad for your credit because the algorithm will believe there is a lack of recent revolving credit. 7-10% balance to limit ratio is the perfect balance to have without hurting your score. 10-30% utilization will make you lose 0-10% of your amounts owed/credit card section of your score. A 30-50% utilization will take away 10-25% of your your amounts owed/credit card section of your score. At 50-90% utilization it is like a drastic upward belt curve and eats anywhere between 25-90% of your amounts owed section. Above 90% utilization, you are really killing your score and need to try to pay it down immediately to boost points. Luckily credit cards update monthly and you can swing 100 points by paying maxed out credit cards down to 10% utilization in just a month.
Keep your old credit cards open forever
Whenever you close out old credit cards you are taking points away from your length of credit history. Credit history is an average of all your open and active accounts. Whenever you pay off a car loan, student loan, or home loan those accounts become inactive and are not calculated into the length of credit history. The only accounts that will remain open forever are credit cards. Make sure you use them at least every 6 months to make sure they do not become inactive. If you ever come back to use a store card and they say they need to run your credit again since you haven’t used it for a while, think twice before you allow them to run it. The reason is because running that credit will cause an inquiry which can cause 2-5 points deducted from your credit. It will also cause a new credit ding of 42 points that you will slowly gain back after 90 days. On top of losing all these new credit points, your account will be brand new and not seasoned. This is why it is very important to use them every once in a while to keep them active.
Close out newer accounts
If you open up Macy’s or Kohl’s cards to save 10%, you can be dragging down your score drastically. If you have a lot of old credit cards and a couple new credit cards, just simply close down the new credit cards to boost your length of credit history. 15% of your score is based off the average length of all your open and active accounts. When you introduce new accounts it adds zero year accounts to the profile causing scores to drop significantly.
Piggy backing or Authorized Users
By adding onto relatives or significant other’s credit cards as an authorized user, you can gain a ton of credit history. Just make sure the account has low utilization, open for a long time, and no late payments attached to the account. You do not want to add too many accounts, because underwriters will flag that down if you are applying for a large loan by yourself. If you have a lot of authorized users and they are on your significant others accounts that you are co-applying for accounts, then you are fine. If all your accounts are authorized users and you alone are applying for large loans it shows to them that you have no credit that you have built up by yourself. The most you want is 1 authorized user to every 4 accounts.
Stay on top of your bills and make sure you pay on time.
Paying your bills on time is by far one of the most important things in building credit. It shows everyone you have the ability to repay debt. If you have an 850 credit score and you get one 30 day late, it can drop your score to 700. So make sure you pay on time! If you came back up to date next month you can achieve a 790 score, and it will start to ween off and bounce up over time. However, you will never achieve a perfect score as long as that late is leftover on your credit score. It will stay on lingering for seven years, so that is why it is very important to pay on time.