How to build your credit score

If you don’t like talking about money, you’re not alone! It can be uncomfortable to talk about debt, income, spending and all of the factors that play into your overall financial health. One of those factors is credit, which can be complicated and confusing. But, building good credit is important and is something we should talk about. We can’t build strong credit if we don’t talk about the process.

According to Credit Karma, Memphians’ average credit score is 628. While that’s considered a “fair” score, it is below the national average of 673. And, the average being “fair” means that there are a lot of Memphians who have credit scores well below 628. We also have to consider that Credit Karma is only looking at people who have existing credit accounts – and we know that thousands of Memphians have no credit history. You are not alone if you’re looking to improve your score! 

Building your credit is a process, but it doesn’t have to be challenging or take a lot of money. With education and taking small, practical steps, you can effectively raise your credit score. 

Check your credit score 
Before you start building credit, you need to know where you stand financially. You can request a free credit report from Equifax, Experian or TransUnion – the three major credit bureaus. Your credit report will give you your overall score and explain how your financial history impacts that number. Each bureau calculates scores differently, so your score may vary slightly across reports, but the financial data should be the same. Review your credit report carefully to ensure all the transactions you see are accurate. You can contact the agencies for more information, if you see something you don’t recognize. 

Pay bills on time
Once you know your score, you can start taking steps to raise your credit. The best way to do that is to pay your bills on time. This is an important first step because missed payments can stay on your credit history for over 7 years. Call the creditor immediately if you’re late on a bill by 30 days or more. Avoid getting to that point by setting up payment reminders or automatic drafts. 

Partner with a trusted financial institution 
One of the tricky things about building credit is that, traditionally, you have to carry debt to build it. This benefits people who can afford “good debt” like a mortgage payment. But now, some banks and other financial institutions are helping people demonstrate creditworthiness by consistently paying bills that are not considered debt. These could include rent payments, car insurance and utilities. Banks that have local presences like Regions are launching these efforts! Talk with your financial institution about opportunities.

Use credit cards sparingly and strategically
Credit cards can help your credit score, if you use them wisely. Credit bureaus want you to use different borrowing methods, and credit cards represent “rotating utilization.” That means credit cards help demonstrate that you can manage and pay off small amounts of debt on a monthly basis. Carrying credit card debt is not good, but using one card regularly, keeping your balance low and paying it off at the end of each cycle can boost your score over time. 

Create a plan to tackle outstanding debt
Credit bureaus consider how many outstanding debt accounts you have when calculating your credit score. If you have several accounts, it might be smart to talk with a lender about combining them. The process is called debt consolidation. This can be especially helpful if you have debts at varied interest rates. Lumping them into one account with a lower interest rate can make paying your bills easier while reducing how much interest you pay over time. 

If consolidating your debt doesn’t make sense, then take a look at your bills and make a plan to pay them down as quickly as possible. Start by looking at your interest rates. Make additional payments toward the account with the highest interest rate, even if it’s only a few dollars per month. When you make bonus payments (no matter the amount) all of that money goes toward your principal balance. Any extra payment you make reduces your debt without paying any interest. That keeps more money in your pocket in the long run!

Explore secured credit cards

Secured credit cards can help you jumpstart your credit, building good habits without adding debt. These cards require a security deposit, which typically becomes your credit limit. You can gradually build a positive credit history by using a secured card responsibly and making timely payments. And, if it ever becomes too much for you to pay off, your initial security deposit can cover the overage.