How do I build good credit? This is a question often asked and often answered. Instead of pursuing that route, we’re going to look at how to build good credit through its opposite: how to avoid bad credit.
How to Avoid Bad Credit
- Don’t pay your bills late – The single most important factor in avoiding bad credit is to avoid paying bills late. Your payment history constitutes a large amount of your credit score. A history of paying your bills late reflects that you are unreliable at paying back borrowed money.
- Don’t use too much of your available credit – A high utilization of your available credit gives the appearance that you cannot control your spending habits. Say you have a $1,000 credit limit and you’ve used $500. This would mean you are 50 percent “utilized.” If you are continually spending close to your credit limit, you look risky to banks.
- Don’t get too much credit too quickly – Each time you request more credit, it causes your credit score to dip slightly. Having more credit is only better when you can readily pay back that credit on time, bringing your score back up. Requests for credit should be spaced out by at least six months. If not, lenders may think you are digging yourself too deep into financial debt, and your credit score will reflect that.
In achieving good credit, it can be helpful to view it through the lens of avoiding bad credit. You can achieve this by paying your bills on time, pacing yourself in your requests for credit, and utilizing as little of your available credit as possible.
Garland & Mason, LLC is a New Jersey bankruptcy law firm with professionals eager to help you find the best route towards good credit. We offer free consultations to help you find out your financial options.