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8 best tips to build excellent credit scores

Getting your credit score from less than good to great.

You’ve probably heard that you need excellent credit scores to qualify for the best terms on credit accounts like mortgages, personal loans and credit cards. Plus, good credit helps you save money and improve your finances in other ways, even if you never borrow a dime.

Here’s what you need to know about building and maintaining high credit scores for life.

Why you need excellent credit scores

One of the best reasons for building credit is that you qualify for lower interest rates when you borrow money, which can save a bundle. For instance, getting a mortgage that’s 1% less saves $80,000 in interest on a 30-year, $350,000 loan.

Here are more ways having great credit improves your financial life:

  • Insurance companies in most states charge higher premiums for auto and home insurance when you have poor credit.
  • Utility companies such as wireless, internet, power and gas providers charge higher security deposits or may not offer money-saving promotions based on your credit.
  • Landlords and property managers may require good credit to approve you for a lease.
  • Employers that check credit may not hire you with negative marks on your credit reports.

8 tips to build excellent credit scores

If building credit is one of your financial goals, keep reading for eight essential tips.

1. Understand how credit scores work.

You must understand how the credit system and scores work to improve your credit. Your data is maintained by three leading nationwide credit agencies: Equifax, Experian and TransUnion. Your creditors, such as credit cards and lenders, may report your account and payment information to one or all of them.

The data in your credit reports is used to create various credit scores, such as the well-known FICO score. However, there are hundreds of different models with their own credit scoring algorithms, which is why scores can vary.

Credit scores typically factor in your payment history, amount of outstanding debt, types of credit accounts, age of accounts and recent credit inquiries. When calculating your scores, credit models don’t use demographic information, such as your race, marital status, gender or income.

2. Use credit accounts to build credit.

It’s a common misconception that being debt-free gives you good credit scores. If your credit reports have too little or no data, they can be too “thin” to generate scores. You must have credit accounts and use them responsibly to build excellent credit.

3. Make payments on time.

Since your payment history is the most significant factor in your credit scores, paying your bills on time every month is critical. Even if you can only send your credit card’s minimum, paying it on time helps build a history of positive data in your credit reports. Making even one late payment can significantly hurt your scores.

4. Don’t close credit accounts.

If you pay off a revolving credit account, such as a credit card or line of credit, keeping it open is better for your credit than closing it. That’s because your credit utilization ratio is a significant factor in your credit scores.

More available credit relative to your debt balances indicates you use credit responsibly. But closing an account cuts your available credit instantly, causing your credit utilization to spike and your scores to dip.

5. Keep account balances low.

It’s a common myth that you must carry debt to improve your credit scores. An excellent credit-building strategy is to make credit card charges that you pay off each month. Not only will you avoid interest, but you’ll maintain a low credit utilization ratio, which boosts your scores.

6. Use a secured credit card.

If you can’t get approved for a regular credit card, consider using a secured credit card for building credit. Secured cards work like standard cards but require an upfront refundable deposit that becomes your credit limit. After making on-time payments for a period, you typically qualify for a regular, unsecured card. Just be sure the card you choose reports payment data to the nationwide credit agencies.

7. Become an authorized user.

A common question is whether being an authorized user on a credit card builds credit. The answer depends on the cardholder’s financial behavior and whether the issuer reports it to an authorized user’s credit report.

If positive payment data gets reported to an authorized user’s credit history, it’s a great way to boost credit. However, if the card owner doesn’t manage their card responsibly, it could hurt an authorized user’s credit.

8. Be patient.

So, how long does it take to build credit? If you’re starting from scratch, you can see significant increases in your credit scores after six months or a year. It may take longer if you’re rebuilding your credit after having accounts in collections or bankruptcy. However, scores typically give more weight to recent account activity.

How often your credit scores update depends on when creditors report information to the credit agencies. Account data gets updated monthly, so your scores can change from month to month. It’s wise to regularly review your credit scores to know whether they’re trending up or down, especially before financing a significant purchase.

About the Author

Laura Adams is a money expert and spokesperson for Finder. She’s one of the nation’s leading personal finance and business authorities. As an award-winning author and host of the top-rated Money Girl podcast since 2008, millions of readers, listeners, and loyal fans benefit from her practical advice. Laura is a trusted source for media and has been featured on most major news outlets, including ABC, Bloomberg, CBS, Consumer Reports, Forbes, Fortune, FOX, Money, MSN, NBC, NPR, NY Times, USA Today, US News, Wall Street Journal, Washington Post, and more. She received an MBA from the University of Florida and lives in Vero Beach, Florida. Her mission is to empower consumers to live healthy and rich lives by making the most of what they have, planning for the future, and making smart money decisions every day.

This article originally appeared on and was syndicated by

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