Most people are not very informed when it comes to their own credit. However, things can change radically when someone has to obtain a loan and face their credit points for the first time. 

It is important to be aware of your own credit, because almost everyone has to deal with it at some point in their lives. It is a good thing to start building up your credit right now. If you are not sure How to Build Credit, here are a few basic tips that should help you get started.

Why is your credit bad?

If your credit is bad, you probably already had to face some consequences. For example, many employers check your credit before hiring you, and even landlords might take your credit score into account when they make a decision to rent to you or not.

Luckily, you don’t necessarily need a high income in order to have a good credit. There are three major U.S. consumer credit reporting agencies: Experian, Equifax, and TransUnion. If you don’t use credit, then your credit history will be intact. In order to have a good credit score, you should borrow money and pay it back right away.

Basically, you will have to prove that you are a responsible borrower that is able to respect their bills and payment schedules. However; sometimes your credit may be low even if you do that, and that’s because errors can occur and your credit report begins to show mistakes. Fixing them will also improve your credit score.

How is your credit score calculated?

Calculating the credit score is something very precise, and it is based on other credit information in your history. Usually the scores vary from 300 to 850. These are the factors that are taken into account:

Payment history (35%)
Debt utilization (the amount of debt you carry compared to your available credit) (30%)
File age (the average age of all of your accounts) (15%)
Inquiries (the number of recent new applications for credit) (10%)
Credit mix (such as student loan, personal loan, credit card, auto loan, mortgage) (10%)

Building up your credit

Your payment history is very important for your credit score. If you do make your payments on time, you will notice that your credit score will go up right away. Nevertheless, if you fail to make the payments on time, it will affect your overall credit score.

Additionally, if you use different credit products, it will help your credit build up faster. For example, if you have a mortage, a credit card, and a car loan, your score will go up more quickly.

Old accounts are also especially useful, since they prove that you have been able to make your payments for a long time. If you can, you should borrow money by continuing to use an old account, especially if it is one that has a positive history. Your balances should also be pretty low. In fact, it is recommended that your balance is under 30% of your card’s total limit, so pay it back quickly.