Positive credit history is often required to get a business credit card, loan, lease, or establish vendor relationships. With so much of your business depending on credit, it’s very important to build strong personal credit. We spoke with the experts to find the best ways to build personal credit so it doesn’t limit your business.
Here are 28 expert tips for building your personal credit:
1. Control Your Spending
Adam Beaty, Certified Financial Planner, Bullogic Wealth Management
The best way to fix your credit moving forward is to create a plan of action. You need to get your spending under control. You need to take a hard look at where your money is going and if it is worth the stress of accumulating high-interest debt. Once you have an idea on your spending habits, you can begin to reduce your spending and funnel that money towards paying off your debt. No level of credit repair will matter if you cannot get your spending under control and your debt paid down.
2. Use a Credit Builder Loan
Steven Millstein, Certified Credit Counselor, Credit Repair Expert
Credit builder loans are offered by several banks and credit unions as an alternative to using credit cards to build a credit history. Before signing up for one, make sure they report to at least one of the major credit reporting agencies, since that’s the only way your loan will result in you getting the credit score you want. The way these work is the bank or credit union agrees to lend you money (typically around $500 to $1,000) that you must pay back via regular monthly payments, usually over a period of one to two years.
3. Try a Retail Store Card
Nathan Grant, Financial Industry Analyst, Credit Card Insider
With their often lower approval requirements than cards from big banks, retail store credit cards can be a great starting point for your personal credit-building journey, especially if you have little to no credit history to begin with. However, these store card offers are generally not as good as regular general-use rewards cards you can get elsewhere.
4. Dispute Negative Accounts on Your Credit Report
Randall Yates, Founder & CEO, The Lenders Network
The credit bureaus allow you to dispute just about anything on your credit report. Dispute a late payment or collection account, and the credit bureau has 30 days to investigate it. If the creditor does not have the proper documents to verify the account or doesn’t respond at all, it will be removed from your credit report entirely. The credit repair industry is built on this; dispute negative accounts and then hope the credit bureau can’t verify it and therefore have to remove it.
5. Be Sure to Use Your Credit
Freddie Huynh, Vice President – Credit Risk Analytics, Freedom Financial Network
Don’t go overboard in the other direction and try to protect credit scores by not borrowing or charging anything. The credit agencies rely on past payment history to gauge how borrowers will do in the future. If you don’t borrow, they have no information to rely on.
6. Only Use Credit for Expenses You Can Afford to Pay
Elissa Miller, Board Member, Credit Abuse Resistance Education – So Cal Chapter
Good credit is established by not taking on too much debt, paying your bills monthly, and paying them on time. Start with only one credit card. Each time, before you hand over your card, think about whether you can actually afford or need that trendy item of clothing or that $10 smoothie. Pretend your credit card is an ATM card and the funds are coming from your bank account. If you would not use your ATM card to make the purchase, it just may be that you should not use your credit card either.
7. Keep Your Balance Low & Credit Limit High
Byron T. Deese, Retirement Consultant, Glass Jacobson Financial Group
Focus on increasing your credit limit and keeping your balance low. Play it safe and target around a 5% to 10% utilization ratio (credit balance over available credit). Do this by requesting an increased credit limit online for each of your cards about every four months. It will be important, as your credit limit goes up, that you don’t take advantage of the limit increase. Continue to use your credit cards, but don’t max them out every month. Try to use only a small percentage of your credit limit (not exceeding 30%), and pay the balance off before the due date each month.
8. Set Up Revolving Credit
Ralph DiBugnara, President, Home Qualified
One of the biggest misconceptions about having good credit is that the way to obtain it consists of having no debt. This is not accurate. The best way to build a good credit score is to have some revolving debt and to keep your balances at less than 30% of your high credit. This means that if your max credit for a credit card is $1,000, then you would want to carry a balance of less than $300. As long as it is always paid on time, which is on or before the due date, you will consistently build a good credit score over time.
9. Keep Your Credit Utilization Low
Dale Robyn Siegel, President, Circle Mortgage Corporation
The worst thing you can do to your credit score, second to not paying your bills, is to max out your credit card balances. Conversely, the fastest and most effective way to improve your credit score is reduce the outstanding balance of those cards. Rule of thumb is to keep the balances well below the 50% mark of maximum credit allowed. This is based on each card, not an average of all your cards. So, if you need a quick fix to your score, pay down the balances below 50% (30% is better) and verify the payments have posted. Wait another week (or as long as you can) and then pull another credit report. If the balances are correct, your score should have increased.
10. Make On-Time Bill Payments
Christian Moreno, CEO, GoKapital, Inc.
Building a good credit score takes time and good habits. One of the best habits you can acquire to build a good personal credit is to always make your payments on time. Not only your credit accounts, but also any other payments like utility or medical bills. Unpaid bills will hurt your credit score and will go to debt collectors.
11. Ask for a Credit Limit Increase
Than Merrill, CEO & Co-Founder, Fortune Builders
Another easy way to build your credit score quickly is to simply call your credit card companies and ask to have your credit limits increased. Not only will this give you more buying power, but also, increasing your credit limits will automatically improve your credit utilization ratio. For example, assume you have a balance of $500 on a $2,000-limit credit card. In this case, your debt-to-credit utilization ratio is 25%. If your credit card company extends your limit to $3,000, your ratio significantly improves to roughly 17%, and this will look good on your credit report.
12. Develop a Comprehensive Plan to Keep Track of Your Finances
Judith Corprew, Executive Vice President & Chief Compliance/Risk Officer, Patriot Bank
If you want to build your personal credit, develop a step-by-step plan that allows you to keep track of your income and expenditures, pay bills on time, and earn the rewards of a good credit history. Even a low-limit credit card, if used wisely and paid on time, will ultimately raise your credit score and save you money when you want to buy a car, or buy a house, or start a business.
13. Be Careful of Shared Credit with Family & Friends
Kathy Longo, Founder & President, Flourish Wealth Management
When agreeing to co-sign on a loan or credit card, you will be responsible for any payments missed on the other person’s part or outstanding loans left unpaid. Not only could this ruin your credit score, it could also ruin your relationship. So always be careful when sharing your credit with your family and friends.
14. Review Your Credit Reports Regularly
Shelia Y. Terrell, Chief Operations Officer, RISE Foundation, Inc.
Obtain copies of your credit reports (Equifax, TransUnion, and Experian) and thoroughly review them. Federal law allows you to obtain a free copy of your credit report every 12 months from the three major credit reporting companies. Make sure the reports are accurate and dispute any incorrect information. Do not pay a credit repair company to dispute any information. It is easy to accomplish this task by yourself.
15. Clean Up Your Past Due Accounts
Debbi King, Personal Finance Expert & Author, The ABC’s of Personal Finance
Paying your bills on time is an important factor that greatly affects your credit score. You can’t fix the past, but you can clean up anything past due. Then begin to make sure you pay at least the minimum required payment on time every month. Once you begin to clean up your past due accounts, your credit score will gradually improve.
16. Build Credit by Getting a Secured Credit Card
Jory McEachern, Director of Operations, ScoreShuttle
If you don’t have a payment history at all, you can start building your credit from scratch by applying for a secured credit card. Once you have made all your payments on time and showed that you’re a responsible borrower, you can upgrade to a cash back, travel, or any other kind of credit card.
17. Avoid Going to Collections for Medical Bills
Megan Hanna, Editor, Fit Small Business
When you go the doctor, it’s easy to get hit by a surprise bill. It’s especially troubling if you don’t think you’re responsible for the debt. The problem is you can still get sent to collections while you’re arguing over responsibility with your provider or insurance company, or if you simply ignore the bill.
To avoid trying to clean up a collection mess later, your best option is to start making phone calls as soon as you get a medical bill. If you owe it and can’t afford it, ask your provider to set you up on a payment plan, which won’t affect your credit. If you don’t think you owe it, communicate frequently and clearly with your provider so they know you’re not ignoring them. Make sure to document these conversations in writing in case you need to provide proof in the future. By being proactive, you can avoid a mess that could hurt your personal credit score.
18. 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.
19. 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.
20. 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.
21. Set Up Automatic Monthly Payments
TJ Hartman, Marketing Manager, National Processing
Focus on maintaining your bill payments on time because this is the part lenders care the most about. You can build a good payment habit by making your monthly bill payments automatic—you can set up an automatic schedule to transfer funds from your savings account directly to pay your loans and credit cards. Sustaining these payments builds good habits and showcases your overall financial health.
22. 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.
23. 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.
24. Do Not Cancel Your Credit Card Even if You No Longer Use it
Natasha Rachel Smith, Personal Finance Expert, TopCashback.com
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.
25. 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.
26. Get a Secured Loan
Cody Green, Founder & 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 you 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.
27. 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.
28. 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 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 and will negatively impact your credit.
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. These habits, such as using your credit well, paying your bills on time, regularly checking your credit report to ensure everything is accurate, and making sure you don’t spend beyond your means, are a great start.
However, if old bad habits have somehow damaged your personal credit, you may seek the help of credit repair companies. Remember, your personal credit is necessary for building your business credit later on. You can also use the above expert tips for building personal credit to help guide you along the way.