Credit plays a fundamental role in home improvement and interior design. Good credit means access to loans and lines of credit that can be used to finance upgrades and repairs, while bad credit means limits on what can be accomplished at any given time.
The bottom line is you need good credit history to qualify for loans and lines of credit you need to design your dream home. Lenders, such as commercial banks and credit card companies, evaluate your credit score and credit report to learn about how you have managed credit before.
The following are five effective ways to build a good credit history:
- Make Your Payments in Time
When creditors examine your credit score, they are interested in how reliably you pay your bills. This is to ensure that you can be relied upon to make your monthly installments. Past performance is usually regarded as a good indicator of future performance.
Not all monthly payments are listed on your credit report. However, any unpaid bill can potentially end up in your credit report if the account is sent to third-party debt collectors. Hence, paying your bills, such as auto loans, student loans, phone bills, and utilities, can influence your credit rating.
- Limit New Credit Applications
Opening many accounts at one time can make you look like a greater risk and may hurt your credit score. It’s worth noting that, for each time you apply for credit, an inquiry is recorded on your credit report, regardless of whether it is approved or denied. This can lower your credit score by five points. If you want to open multiple accounts, do it over time instead of within the same months.
- Take a Small Loan and Pay it Back on Time
This is one of the most effective ways to build your credit history. Look for personal loans with no credit options. These loans range from $100 to several thousand dollars, and their installments have no gauge of your ability to repay.
Small loans can be used specifically to build your credit score. By repaying a loan in time, it shows that you can manage different types of debt. Making monthly installments on time adds to your successful payment history, fostering your credit performance.
- Keep Your Old Accounts Open
The age of your credit accounts significantly affects your credit ratings. If you have multiple old accounts, you appear less risky to lenders. Thus, if you have old credit accounts that you are not using, don’t close them down.
Closing an old account won’t immediately remove it from your credit history. However, after a few years, the credit bureau will drop it from your records, which may lower your credit score by a few points.
- Pay Off Debt and Keep Credit Card Balances Low
Credit utilization is an important aspect of credit card score calculations. It’s typically calculated by adding all your credit card balances at a given time and dividing it by your total credit card limit. For instance, if you have outstanding credit card balances adding up to $2,000, and your total credit card limit is $10,000, your credit utilization ratio is 20%.
Maintaining low credit utilization is essential and adds some points to your credit score. Moreover, many lenders opt for low credit utilization ratios of 30% or less. A low credit utilization ratio indicates that you haven’t maximized your credit cards, and you are likely to manage your debts effectively.