How To Build Good Credit & Improve Your Credit Score

Did you know your credit score impacts your ability to take out a loan? What about how a low credit score typically leaves you with higher interest rates and costs over the life of the loan? Unfortunately, you can’t raise your score overnight, but as your partner for the journey, Rivers Edge Bank aims to be a resource to help you learn how to build good credit leading up to life’s big moments. Whether you’re seeking to strengthen your credit score to buy a house, purchase a new car or pursue a passion project, our team of personal lenders is happy to help you close the gap with a mortgage or loan. We want you to be able to reap the benefits of a good credit score and are here to help you no matter where you are in your credit journey. By taking steps to improve your credit score today, you set your future-self up with a powerful head start for all the tomorrows ahead.

How Is A Credit Score Calculated?

Five different components shape your credit score: payment history, credit utilization, credit history length, new credit inquiries and credit mix. Of these, your payment history carries the most weight because on-time payments show lenders you’re reliable and pay back your loans. Here are a few best practices to get you started as you consider how to build good credit knowing everything your credit score entails:

1. Payment history - Committing to timely payments across all financial obligations is non-negotiable. It's not just about credit cards and loans—every bill payment factors into your payment history, with the potential to raise or lower your score.
2. Credit utilization - Your credit utilization ratio refers to how much credit you're using compared to your credit limit. By keeping your balances significantly lower than your card limit (ideally under 30%), you signal financial responsibility to credit agencies.
3. Credit history length - An established credit history demonstrates you’re able to manage credit and pay off debts long-term. No matter how far back your credit history dates, you can still have good credit so long as you pay bills on time, but the sooner you start building your credit history, the more you’ll be able to improve your credit score.
4. New credit inquiries - Opening new lines of credit can dent your score. If you already have a credit card, continue to use it (and pay it off monthly) to help build your credit history. If you're new to credit, consider an option like a secured credit card to build your score.
5. Credit mix - While not usually a make-or-break factor for your credit score, a good mix of different credit and loan types tells lenders you can responsibly manage a variety of credit. Still, having a healthy mix only matters if you pay off each line of credit or loan accordingly.

What Makes A Good Credit Score?

Credit scores typically fall in a range between 300 and 850 based on your credit report and how well you meet the five criteria factored into your score. So what do these numbers mean? The progression of how lenders evaluate credit scores looks like this:

• Very Poor = 300 to 579
• Fair = 580 to 669
• Good = 670 to 739
• Very Good = 740 to 799
• Exceptional = 800 to 850

Need to know where you stand? Some companies charge a small fee or offer your score as part of a subscription, but many credit card companies let you check your score for free. Since your credit score is based on your credit report, you should check that report regularly, looking for any discrepancies in payments and your credit account. You can get one free credit report every year from each of the three major credit-reporting agencies: Equifax, Experian and TransUnion. You can check your credit report for free by visiting annualcreditreport.com.

Keep in mind that your credit score may vary depending on which agency’s report you’re looking at due to slight variations in how a credit score is calculated. This means you might see a different score disclosed by your lender when applying for a loan versus what you see in an app like Credit Karma. Don’t worry about minor discrepancies in your score. As long as you’re following best practices for credit management, your score should reflect it and you can reap the benefits of a good credit score.

Benefits Of A Good Credit Score

Think of your credit score as your financial report card. It reflects your borrowing history and shows lenders how responsible you are when it comes to paying back loans. It showcases your credibility as a borrower and makes you appear more trustworthy to lenders. The benefits of a good credit score pay off when you apply for a loan or a line of credit because the higher your score, the more likely you are to be approved for a loan. And with a good credit score, you’re typically rewarded with better interest rates so you’re paying less money throughout the life of the loan, allowing you to save on monthly payments. For large purchases like a home, having a high credit score when applying for your home loan could mean thousands of dollars saved over the span of your mortgage.

How Your Credit Score Impacts Buying A House

A good credit score is the gateway to your home loan and numerous benefits in the home-buying process. It enables lower interest rates on your mortgage, increases likelihood of loan approval and most compellingly, it nets you smaller monthly payments, preserving your financial health in the long run. In the example below, you can see how a high credit score enables thousands of dollars of savings over the course of a mortgage loan.

To buy a house in your budget, understanding how to build good credit and improve your credit score can be the most impactful financial move you make. Let’s take a look at the importance of boosting your credit score and shed some light on how you might be able to secure your dream home, even if you have limited resources.

Your Credit Score & Home Loans: Tips For First-Time Homebuyers

When it comes to preparing your credit score to buy your first house, think of it as a marathon rather than a sprint. It takes time and preparation before you even begin to browse the local real estate listings. By starting early, seeking professional advice and thinking long term, you can lay the foundation for your future home-buying adventure. Keep in mind several key tips for first-time homebuyers to maximize your credit score and take advantage of a home loan today.

Prepare Your Credit Score Well Before You Buy A House

The sooner you start working on improving your credit score, the better. Securing your credit score is an important part of your home-buying journey. Taking proactive steps to secure the best score possible ensures that when the time comes to submit your mortgage application, the financial doors are wide open.

Seek Professional Financial Recommendations To Improve Your Credit Score

Financial advisors and mortgage specialists understand the weight of credit scores in the home-buying equation. Their insights, tailored to your specific situation, can streamline your credit improvement strategy, offering nuanced guidance that may not be available in online resources.

Practice Patience & Persistence For Your Credit Score & The Home Loan Process

Building a good credit score takes time and effort. But don't get discouraged—stick with it, and you'll reach your goal! Brick by brick, your credit score is built through the thoughtful collection and application of good financial habits and tips for first-time homebuyers.

The homeownership journey is a marathon, and training your credit score requires sustained effort. Endurance is more important than speed in this case, and it's the persistent improvement that ultimately wins the best rates and terms on your mortgage.

Learn How To Build Good Credit From Our Experienced Lenders

Understanding how to build good credit is the first step toward improving your credit score. To start actively moving the needle, our team of lenders at Rivers Edge Bank recommends a few best practices to help you ultimately reap the benefits of a good credit score:

• Always pay your bills on time. Late or missed payments will quickly drag down your credit score.
• Take advantage of payment reminders or online bill pay through your financial institution to make sure things like credit card bills, utility bills and loan payments are paid on time.
• If you have any overdue bills, contact the biller and make plans to get them caught up. Letting an overdue account go to a collections agency can damage your score for up to seven years.
• Pay down your credit card balances. The less you owe, the more it will help your credit score. A good guideline is to keep your balance below 30% of your credit limit on each card.
• Don’t automatically close unused or paid-down credit cards, especially if you have had them for a long time. A long credit history can have a positive effect on your score. Just be sure to keep an eye on unused credit cards to ensure no fraudulent activity occurs and you aren’t stuck with past due payments for transactions you didn’t make.
• Don’t apply for multiple credit cards or charge accounts in a short amount of time. You may lose a few points each time a creditor checks your report after you fill out an application.
• Focus your loan applications. When you're looking for a new auto loan or mortgage, try to submit all of your applications to potential lenders within a two-week period. For these types of loans, multiple inquiries within a two-week period are treated as a single inquiry and won’t hurt your credit score like multiple credit card inquiries will.

How Long Does It Take To Raise Your Credit Score?

Improving your credit score doesn’t come with a timeframe. If you’re just establishing credit, you should see your score rise after a few months of on-time payments. But if you’ve missed payments or managed credit poorly in the past, it will likely require a year or more of consistent efforts to reach a good range.

Keep in mind, you don’t need to take out costly loans or buy a new car to boost your payment record (don’t forget applying for new credit dings your score in the short term!). With patience and steady commitment to best practices, you can yield significant results to set yourself up for better credit in the future.

Improve Your Credit Score & Explore Exciting Lending Opportunities At Rivers Edge Bank

Your credit score is a powerful tool for buying a house or making another life-changing purchase to unlock the life you want. By understanding how credit works and taking steps to improve your credit score, even on a limited budget, you can achieve your dreams and save a significant amount of money in the process. Taking control of your credit score is an investment in your financial future, and at your local Rivers Edge Bank, we’re equally invested in your future as fellow members of the community. Explore our financial literacy hub for more resources to support your financial future. Contact our team of experienced lenders with local expertise to learn more about how to build good credit or to discover our mortgage and loan opportunities today.

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