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When it comes to borrowing money, your credit history is a key indicator of your trustworthiness. Lenders, creditors, and banks normally review credit scores to determine loan eligibility as well as the rate of interest on the loan. Because your borrowing experience can make such a big difference in the amount of money an individual can borrow and how much they ultimately pay on a loan, it is important to know how to build a good credit history. Here are a few things that those looking to build or improve their credit score should keep in mind.


Key Factors

There are several factors that ultimately contribute to an individual’s credit score. These include length of credit, number of accounts, and payment history. Additionally, credit scores take into account the total balance owed, credit utilization ratio (the amount of credit used divided by the amount of credit allowed for use), and any public financial records including bankruptcy. Assessed together, these factors make up a credit score; higher scores are considered better and the borrower more trustworthy while lower scores are more likely to prompt more scrutiny, limited eligibility for loans, and higher interest rates.


Credit Card Usage

One of the easiest ways to build credit is to obtain and use a credit card. However, it is important to be cautious and deliberate when using credit cards. Using them for things you can afford will be critical; paying off the balance in full when possible will serve you well. Avoid maxing out your credit cards; keeping your utilization low looks more appealing to lenders, as individuals who max out their cards often struggle to pay back the balance in full. 

If you have no credit at all, having a secured or co-signed card or asking to be an authorized user on someone else’s credit card can be a good method of building credit slowly. 


Take Out A Loan

Credit cards are not the only way to build credit. Student loans, auto loans, and mortgages also contribute to your score. When repaying a loan, making monthly payments that are higher than the minimum will help build and improve your credit score. For students and recent graduates, paying off your student loans is also a great way to build credit. You only need to make your payments on time, but going above and beyond if possible and paying more than what you owe each month can not only boost your credit score but can also limit your overall debt and get you to financial freedom faster.


Get Credit for Your Credit

Even if you do not have any existing loans or credit cards, you may have a great record of paying bills on time and deserve to be recognized for that, especially when your credit score can have such a significant impact on your life. Some rent-reporting services apply your bills to your credit report, and businesses like Experian include positive rental information on their credit reports to boost scores. If you are looking to obtain a loan and have a nonexistent credit score or your credit score is not as high as it would be if it took your bill payments into account, you can request that the lender pursue an extended credit report and/or provide your own formal records of payments to demonstrate your trustworthiness.


Securities and Investment Advisory Services offered through Essex Financial Services, Inc., a Registered Investment Advisor, Member FINRA, SIPC.  A subsidiary of Essex Savings Bank. The securities and insurance products offered through Essex Financial Services, Inc. are not a deposit of, or other obligation of, or guaranteed by any bank, or an affiliate of any bank, are not insured by the FDIC or any other agency of the United States, the Bank or an affiliate of the bank and involve investment risk, including the possibility of a loss of the principal amount invested.