top of page
  • Writer's pictureDonnelle Brooks

How To Build Your Credit Rating: What Will and Won't Help

Credit rating is not often something you think about until it's time to buy a house. If you have found your way to this article, you are probably starting to have these thoughts. Never fear, this easy to follow guide will tell you exactly what actions will and will not help build your credit score. And hopefully we can have some fun along the way!

Let's have a brief overview of your credit rating and how it is calculated. Calculating it can be complicated so let's oversimplify. There are two things that contribute to your rating - negative and positive reports. You want to maximise the positive reports and minimise the negative. Now, that's doable! Let's look at exactly how to achieve this.

Things that WILL help you build your credit rating

Your credit rating is more than just a three-digit number; it's a reflection of your financial responsibility and can greatly impact your borrowing capabilities. Whether you're looking to secure a loan for a home, car, or simply want better financial opportunities, building a strong credit rating is a crucial step. In this article, we'll walk you through actionable steps to boost your credit rating effectively.

1.Understanding Your Credit Report

Before you begin, it's essential to understand your current credit situation. Obtain a copy of your credit report from credit bureaus like Equifax, Experian, or TransUnion. Review the report for inaccuracies, such as incorrect account information or late payments that you've already resolved.

2. Pay Bills on Time

Consistently paying your bills on time is one of the most critical factors in building a positive credit history. Set up automatic payments for bills like credit cards, utilities, and loans to ensure you never miss a due date.

3. Use Credit Responsibly

Credit utilization, the ratio of your credit card balances to your credit limits, plays a significant role in your credit score. Aim to keep your credit utilization below 30% to demonstrate responsible credit management.

4. Diversify Your Credit Mix

Having a mix of different types of credit, such as credit cards, installment loans, and mortgages, can positively impact your credit rating. However, only take on credit you can manage comfortably. And avoid payday loans!

5. Avoid Opening Too Many Accounts

While diversifying your credit is important, avoid opening numerous new accounts within a short period. Each application can result in a hard inquiry on your credit report, temporarily lowering your score.

6. Don't Close Old Accounts

The length of your credit history matters. Closing old accounts can shorten your credit history and potentially lower your credit score. Keep older, well-managed accounts open to demonstrate a longer credit track record.

7. Manage Debt Wisely

If you have existing debt, create a realistic repayment plan. Reducing outstanding balances over time demonstrates your commitment to managing your financial obligations responsibly.

8. Be Cautious with Co-Signing

Co-signing for someone else's loan makes you responsible for the debt if they default. Be cautious when co-signing, as it can impact your credit if the borrower doesn't meet their obligations.

9. Regularly Monitor Your Credit

Regularly monitor your credit reports for any changes or inaccuracies. Detecting and addressing issues promptly can prevent potential negative impacts on your credit rating.

10. Seek Professional Advice

If you're struggling with credit management or have questions about improving your credit rating, consider seeking advice from financial counsellors or credit repair agencies. Be cautious and verify their credibility before proceeding.

Can I build my credit rating quickly?

Building a strong credit rating takes time, dedication, and responsible financial habits. By paying bills on time, using credit wisely, diversifying your credit mix, and monitoring your credit regularly, you can steadily improve your credit score. Remember, there are no shortcuts, and consistency is key. As your credit rating improves, you'll open doors to better financial opportunities and enjoy greater peace of mind in your financial journey.

Things that will NOT help you build your credit rating

Building and maintaining a strong credit rating is crucial for financial well-being. While there are various actions that can positively influence your credit score, it's equally important to recognise that not all financial activities contribute to its improvement. In this article, we'll explore activities that do not impact your credit rating, helping you make informed decisions about your financial habits.

1. Debit Card Usage

Using a debit card for transactions doesn't have a direct impact on your credit rating. Debit cards are linked to your bank account, so the transactions are not reported to credit bureaus. However, responsible spending through your debit card can indirectly help you manage your finances better, which might positively affect your credit rating in the long run.

2. Paying Rent

Paying your rent on time is essential for maintaining a good relationship with your landlord, but it generally does not contribute to your credit rating. Rent payments are not automatically reported to credit bureaus unless you're using specialised rent-reporting services. However, if you're looking to build credit, consider alternative ways like responsible credit card use or taking out a credit-building loan.

3. Utility Bill Payments:

Paying your utility bills, such as electricity, water, and internet, typically does not impact your credit score directly. Similar to rent payments, these bills are not reported to credit bureaus by default. However, consistent and timely bill payments can showcase your financial responsibility and stability to potential lenders.

4. Savings and Investments

While having a healthy savings account or investments is excellent for your overall financial health, they do not influence your credit rating. Credit scores primarily assess your borrowing behaviour and how you manage credit-related obligations.

5. Income and Employment Status

Your income level and employment status are not considered when calculating your credit score. However, some lenders might request this information as part of their application process to assess your ability to repay a loan.

6. Soft Inquiries

Checking your own credit report or receiving pre-approved credit offers usually results in a soft inquiry, which doesn't impact your credit score. Only hard inquiries, initiated when you apply for credit, can have a minor negative effect on your score.

7. Income Tax Payment History

Your income tax payment history doesn't affect your credit rating. The tax agency's relationship with credit bureaus is separate from credit reporting agencies.

8. Personal Information Changes

Updating personal information like your address, phone number, or marital status does not impact your credit score. Credit scores are based on credit-related activities, not personal details.

So paying rent will NOT help me build my credit?

Understanding what doesn't impact your credit rating is just as important as knowing what does. While certain activities like debit card usage, paying rent and utility bills, and maintaining savings won't directly affect your credit score, they still contribute to your overall financial well-being. Responsible financial habits, such as paying bills on time and managing debt, remain essential for building a solid financial foundation. To actively improve your credit rating, focus on activities that are reported to credit bureaus, such as timely credit card payments, responsible borrowing, and keeping your credit utilization low.

9 views0 comments


bottom of page