Building credit is important. If you do not have a positive credit history, it can be difficult to get a business credit card, loan, or even a lease. If you’re an entrepreneur, your personal credit is essential when applying for these business financing tools. We spoke with the experts to find the best ways to build personal credit so it doesn’t limit your business.
Here are 27 expert tips for building your personal credit:
1. Get Credit For the Rent You Pay
Alexander Lowry, Professor of Finance, Gordon College
There are rent-reporting services such as Rental Kharma and RentTrack that take a bill you are already paying and put it on your credit report, helping to build a positive history of on-time payments. Not every credit score takes these payments into account, but some do, and that may be enough to get a loan or credit card that firmly establishes your credit history for all lenders.
2. Gradually Take on More Credit
Howard Dvorkin, CPA & Resident Expert, Debt.com
One tactic to improve your score can be to gradually take on more credit. However, don’t apply for too many credit lines or loans within a six-month period as it can hurt your credit score. Just take on new credit gradually and slowly build credit until you achieve the score you want. Just make sure you pay on time to keep you on the right track. Also, be careful not to open too much credit at once, because too many credit inquiries can actually hurt your score.
3. Have an Emergency Fund Available
Adam D. Van Wie, Founder, Van Wie Financial
The most basic way to improve a personal credit score is to not allow yourself to get into a situation where you can’t make a payment on a bill. That is why it is very important to have an emergency fund. That money set aside can be the difference between making or missing a payment, which is ultimately what determines if you will have good or bad credit.
4. Set Up Automatic Monthly Payments
TJ Hartman, Marketing Manager, National Processing
Focus on maintaining your bills payments on time because this is the part lenders care the most about. You can build a good payment habit by making your monthly bills payment automatic – you can set an automatic schedule to transfer funds from your savings account directly to pay your loans/credit cards. Sustaining these payments builds good habits and showcases your overall financial health.
5. Borrow From Lenders That Report to Credit Bureaus
Julie Pukas, Head of U.S. Bankcard and Merchant Services, TD Bank
When it comes to choosing a lender, be selective and do your research. You don’t want to borrow from lenders that won’t report your activities to the credit bureaus. It’s best to choose a lender that responsibly reports your credit activities to the credit bureaus as this will help you boost your credit as you continue to pay off your bills.
6. Keep Your Credit Utilization at 20 Percent or Lower
Robert Franco Jr., CEO & Founder, Venture Credit Repair
Credit scores come from low utilization on your credit cards and on-time payment history. Aside from making sure that you pay your bills on time, it’s also recommended to keep your credit utilization low – ideally at 20% or below. It’s also advised that you pay your credit card balance in full every month to clear your credit utilization.
7. Diversify Your Credit
Lyn Alden, Founder, Lyn Alden Investment Strategy
Diversify your credit by having both an installment loan (like a mortgage or a business loan) and a revolving credit account (like a credit card or a line of credit). This shows lenders that you can handle multiple types of debt. You should never take on unnecessary debts, but when financing is appropriate for you or your business, having diversity in your debt types helps improve your score.
8. Be Proactive With Credit Monitoring
Emily Stanley, Finance Expert, Business.org
Monitor your credit regularly. Request copies of your credit reports, review them carefully, and dispute any mistake. Track your credit score and investigate if there’s a significant drop. Individuals are eligible for one free report from each of the three major credit bureaus each year, but using a credit monitoring service is encouraged, especially if you manage both your personal and business accounts.
9. Do Not Cancel Your Credit Card Even if You No Longer Use it
Natasha Rachel Smith, Personal Finance Expert, TopCashback
Before you cancel your credit card, reconsider. The longer your credit history, the better you are perceived by lenders. Closing an old credit card, even if you’re no longer using it, could hurt you more than expected. Not only will you lower your available credit which in turn affects your credit utilization ratio, but you will also clear your longest credit record.
10. Don’t Use Gray-Area Tactics to Boost Your Credit Score
James R. Duren, Personal Finance Expert & Credit Card Analyst, HighYa.com
There are experts who will tell you that you can use a variety of methods to boost your score as high as 100 points in a matter of days. However, their tips only apply to certain situations and often include illegal pay-to-delete schemes between the cardholder and a collections agency. Never get tempted to use gray-area tactics to get information removed from your account. This is unethical and purely dishonest.
11. Charge Monthly Bills to Your Credit Card
Binyamin Shimshoon, CEO, Growpayment
One way to help build your credit is to automatically charge your regular monthly bills to your personal credit card. You can include your utility bills, telephone bills, internet bills, and gym memberships to your credit card. Make sure to pay these bills promptly when they’re due as delays can sabotage your credit record.
12. Be Aware of Hard and Soft Credit Checks
Jeff Proctor, Personal Finance Expert, DollarSprout.com
Each time you apply for a new loan or credit line, it counts as an inquiry, which dings your credit score by a few points. Be careful when applying for new credit – make sure that you only do that when you really need it. It’s best to manage your finances properly and live below your means so you won’t need to apply for too much credit at once.
To learn more, read our guide about hard and soft credit checks.
13. Understand Your FICO Breakdown
Alayna Pehrson, Blog Manager, Best Company
When looking to build good credit, you should first know what affects your credit. The FICO scoring is based on payment history (35%), balance (30%), length of your credit history (15%), credit diversification (10%), and new credit (10%). When you know what affects your credit score, then you can choose what good credit habits you should develop.
14. Get a Secured Loan
Cody Green, Founder and co-CEO, USADrives.com
The only way you can prove to lenders that you’re responsible and capable of paying back credit is to make sure you’re actively using a product of credit. You can apply for a secured loan and ensure to make on-time, regular payments. A secured loan is one that is secured by an asset as collateral, and it’s easier to obtain especially if you don’t have a high credit score.
15. Request a Credit Limit Increase
Byron Ellis, Certified Financial Planner, United Capital Financial Advisors
Increasing your credit limit might sound counterintuitive, but it can really do wonders for your score, as long as you don’t burn through the extra credit. Only take an increase to your credit line if, first, you trust yourself not to spend it; and second, if your credit issuer doesn’t require a credit check to do so as it might only end up hurting your score.
16. Make Sure You Have Account Activity
Mike Beck, General Manager, EasyLLCFile
Account activity can actually impact your score. If you have a credit card that never gets used, over time the available credit on that account could be discounted or not counted at all (depending on the bureau and score type) – effectively decreasing your total available credit and
increasing your utilization. This can negatively affect your score – so make sure that you have account activities, even small ones.
17. Pay Your Credit Card Balance in Full
WenFang Bruchett, Founder, BlissFinance.com
While it’s tempting to pay just the minimum required payment on your credit card balance, you should understand that the credit card companies add an interest on your credit card balance every day. This is the reason why it’s more difficult and nearly impossible to settle your balance when you only pay the minimum. When you have a huge balance on your credit card, it can affect your credit score.
18. Don’t Use Low-Credit or No-Credit Lending Options
Parker Daniels, Personal Finance & Insurance Specialist, TheGeneralAutoQuotes.com
Many lenders, banks, and car dealerships tout low-credit or no-credit lending options. Do not fall for this kind of trap. Aside from having to pay higher interest rates because lenders assume more risk, these types of loans will typically not help build your credit. And because the interest rates are much higher, there will be a greater chance that you’ll default on your payments, which will negatively impact your credit.
19. Don’t Spend Outside of Your Means
Steven Millstein, CFP, Credit Zeal
In general, credit is an easy fix that most people turn to when things get rough. However, you can try to seek out alternative options. It is typically discouraged to use credit when you’re not sure how to pay it back, else you’ll be faced with the need to repair your credit later.
20. Stay On Top of Your Credit Report
Jeffrey Bumbales, Director of Marketing, Credibly
Credit reports summarize your past use of credit; credit scores estimate how well you’ll utilize it in the future. Although it may seem out of your control, check your reports annually for errors and discrepancies and correct the issues. Make sure you stay on top of payments, keeping your credit utilization ratio low and your accounts open as long as possible. People often forget that opening new accounts will lower their average account age
21. Use Store Credit Cards to Build Credit
Andrea Maurizio, Senior Advisor, Pemberton Home Consulting Group LLC
Store credit cards are a good option to build credit from scratch. They not only help consumers save money at their favorite stores, but they may also help those with little or no credit prove they can handle money responsibly. Make sure not to carry a balance as this type of credit card usually have high interest rates.
Read our article on Lowes vs Home Depot store cards for more information.
22. Consider Buying or Leasing a Car
Aixa Vilar, Ecommerce Expert, Emerchantbroker.com
If you don’t want to take a loan or apply for a secured credit card to start building your credit, then consider leasing a car. Making monthly payments on an auto lease is one quick way to build your credit. Just make sure that the lessor of your car reports your payment activities to the credit bureaus.
23. Get a Secured Credit Card
Tom Tessin, Owner, HowMuchIsIt.org
If you are just starting to build your credit, the best thing to do is to apply for a secured credit card and use it for your regular monthly expenses. Make sure to pay off your bill promptly every month. It’s easy to get approved for a secured credit card, and while these cards do have a high APR and annual fee, it’s a good way to start building your personal credit.
For more information, read our article on the best secured credit card.
24. Pay Your Bills on Time, Every Time
James Hendrickson, Finance Expert, SavingAdvice.com
Generally, the best thing to do to build or improve your personal credit is to pay your bills on time and pay off your debts as soon as you can. This is because credit scores are most heavily impacted by your payment history and the balance you owe. Make sure you don’t default in paying your bills.
25. Maintain a Low Credit Balance
Andrea Woroch, Consumer Finance Expert, www.AndreaWoroch.com
Maintaining a low balance will help you manage timely payments and improve your credit score. Make sure to use your credit card or take a loan only when you need to. Do not to swipe your credit card every time you make a purchase. Also, try to keep your lifestyle within your financial capacity and make sure you have enough savings in case of emergency.
One easy way to build your credit is to open a loan account with a co-signer who already has good credit. A co-signer is someone who agrees to pay the loan in case you cannot make payments. Since the co-signer will be liable for the loan, MoneyUnder30 recommends that you make sure to pay for your loan responsibly. Failure to do so may not only ruin your own credit, it may also ruin your relationships.
27. Apply For A Credit-Builder Loan
The sole purpose of a credit-builder loan is to help with building credit. It works as a forced savings program. The money you borrowed is held by the lender in an account. This will only be released to you when you pay off the amount loaned. Your payment activities are reported to the credit bureau, thereby helping you build your credit.
Bottom Line – Ways to Build Credit
As credit building is both a journey and a process, you need to be patient because it takes time. When it comes to building good credit, it’s better to start off right. Good habits are a way to ensure that you’re on the right track and will lead to qualifying for better credit cards and business loans which could save you big in the long run. Use these 27 expert tips for building personal credit to help guide you along the way.