What bills help build credit?

dcCred — Fri, 22 Jul 2022 19:22:20 +0000

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When you’re trying to improve your credit score or establish a credit history, it can be challenging to know what factors are most likely to help. After all, it can take six months of positive financial practices to build a good credit baseline.

While regular monthly bills don’t make up a major portion of your credit score, several types of bills can have positive—or negative—effects. Keep reading to learn which bills can potentially help you build your credit.

What bills count toward your credit?

Keeping up with monthly payments on your credit card, auto loan, student loan, medical bills, rent and monthly utilities could help build your credit.

Credit card payments

Credit cards are one of the most influential monthly bills that contribute to building credit. These accounts are reported to the major credit bureaus—namely, Experian®, Equifax® and TransUnion®—making them notable contributors to your overall credit report.

To leverage credit card usage and build credit, try to pay off all your credit cards in full each month. Making minimum payments can help your credit score as well, but only if your overall credit utilization remains low.

Also, remember that avoiding credit card usage doesn’t necessarily help your credit. So long as you’re making appropriate payments, utilizing cards frequently can help to build credit through a record of on-time payments.

Auto loan payments

Car loan payments are also reported to credit bureaus, which means it only takes one late or missed payment to see a negative impact on your credit. If you’re going to finance a vehicle, be sure you can comfortably make the monthly payment on time every month.

Student loan payments

Like credit cards and auto loans, student loans appear on your credit report. If you’re struggling to keep up with payments, that can be a negative factor.

However, student loans can also be key in helping younger people build a positive credit record. Since the length of credit history factors into credit scores, many borrowers may benefit from a loan account dating back to their early college days—especially if they don’t have a great deal of other credit history to show.

That said, late and missed payments can hurt your credit score, so if you’re having trouble making monthly student loan payments, don’t hesitate to research alternative payment options.

These may include refinancing, deferring loans while still pursuing education, exploring loan forgiveness programs or switching to an income-based repayment schedule, depending on the types of loans you’re holding.

Medical payments

Figuring out where medical bills fit into your credit picture can be complicated. On one hand, medical bills aren’t normally reported to credit bureaus as long as they’re in good standing. So, if you’re making all your medical payments on time, you’re in good shape.

But medical bills tend to come unexpectedly and, if you fall behind on payments, you could be hit with another surprise when an unpaid medical bill in collections appears on your credit report, bringing down your score.

The good news is that, as of July 2022, the top three U.S. credit reporting agencies have made changes to the way medical bills will appear on reports, not including them until a bill has been in collections for a full year and not at all if the outstanding bill is less than $500. If a medical bill in collections does end up on your credit report, keep in mind that it won’t be dropped from your report for seven years unless you pay it off or it was reported in error.

(Sometimes) rent, phone and utility payments

Rent can be another tricky factor in your overall credit picture as landlords generally don’t report payment information unless there’s a problem (i.e., missing or late payments). That said, the three major credit bureaus will all include this data on your report if they see it (note that there are ways to petition landlords to report your on-time, positive payments).

The same largely goes for other monthly bills, such as phone, internet, cable and basic utilities. As long as you’re keeping up with your payments, there’s nothing to worry about, but if you’re focusing on building your credit, it’s essential not to let these bills fall behind and end up in collections.

What bills don’t count toward your credit?

When you’re considering what bills help build credit, keep in mind that some types of bills will never appear on your credit report and therefore have no impact on your score. Specifically, tax liens and civil court liens are no longer reported to credit bureaus, while other fees like library fines and parking tickets are never a credit concern.

Why some bills are counted and others aren’t

As you’ve probably noticed, the factor determining whether a bill counts toward your credit score is whether it’s reported to credit bureaus. Surprisingly, lenders and creditors aren’t legally required to report account and payment information to credit reporting agencies.

Industry standards, however, dictate that certain types of debt—such as mortgages, student loans and credit cards—will be reported as a matter of practice. Providing that information helps these companies make better decisions about how they’ll loan money or extend credit to individuals in the future.

There’s a way to use this system to your advantage while building credit. While many bills may not be reported to credit bureaus when paid on time, those bills may often be paid by credit card, which will be reported. The advantage here is that having regular monthly payments processed through a credit card will help you build a history of credit usage, especially if you’re starting from scratch.

Be aware, however, that if you’re struggling to keep up with bills, paying with a credit card only to fall behind on paying off that credit card balance will have a fast negative effect on your credit score.

Some providers only report late payments and collections

If there’s one thing you can do to make sure your credit continues to improve over time, it’s paying all your bills on time. Many creditors only report to credit bureaus when payments or late or missed or when an account is sent to collections, all of which negatively impact your score—and negative items can remain on your credit report for years, keeping your score down long after you’ve established positive credit habits.

Other simple ways to build credit

While you’re working hard to pay bills on time, there are some other steps you can take to begin building or improving your credit.

Maximize your length of credit history by leaving older accounts open, and avoid opening new ones more than necessary. Applying for new credit can also result in credit inquiries that may weigh against your score.
Instead of opening a new credit card, ask for a credit limit increase. This will allow you to maximize credit utilization on a single, older account rather than regularly hitting your max across multiple younger accounts.
Set up automatic bill pay. If forgetting to pay bills on time is causing your accounts to fall into poor standing, setting up automatic payments can make sure those bills are taken care of each month.
If you already have outstanding late bills, get caught up as soon as possible. If you make a payment before the account is sent to collections, you may still avoid having it show up on your credit report at all.
Check your credit reports and dispute any errors. According to the Consumer Financial Protection Bureau, you should check your credit reports at least annually and make sure there are no errors that might stop you from getting a loan or credit. Make use of free credit report providers and write to credit reporting agencies to dispute any errors you encounter so they may be removed.

If you’ve taken all these steps and you’re still not happy with your credit standing, or if you’re simply having trouble understanding all that goes into your overall credit picture, a CreditRepair.com can help you get back on track and build the credit you desire for a more secure future.

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

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Using a Secured Credit Card to Build Credit

dcCred — Fri, 10 Jun 2022 18:14:13 +0000

To get the best terms when purchasing a car or house, applying for a personal loan, or buying a new phone your credit score comes into play. Together with your credit report, your score tells the seller/lender your creditworthiness. Credit rating is based on your previous debt and how you managed it.

If you have a good and long credit history, you get favorable credit terms. On the other hand, without any credit to show or a report riddled with late payments and overdue debts, you’ll attract undesirable terms or not get approved at all.

So, how do you fix bad credit? One of the ingenious ways is using a secured credit card as explained below.

What Is a Secured Credit Card?

A secured credit card is just one of the broad categories of credit cards. The distinction is that, unlike traditional credit cards whose repayment is not guaranteed, the risk of defaulting on a secured card is reduced through a cash deposit.

The limit is equal to the deposit, meaning that the issuer assumes a very small risk. Additionally, the security makes it unnecessary for the issuer to ask for a credit report or attach a cap on credit scores when applying for a secured credit card.

How Much Is the Security Deposit for a Secured Credit Card?

Typically, the card requires the holder to deposit $200 to $300. However, some cards attract a deposit of just $49. The upper limit is around $2500 or more depending on the issuer and previous use of the card. What is important is to remember that the credit line is equivalent to the amount of money you put into the card.

Tips for Building Credit Using a Secured Credit Card

For the card to make a difference in your credit scores, you need to know how to use it wisely. The factors that go into credit rating calculations include; payment history, outstanding debt, new credit, credit mix, and the length of credit history. With this in mind, here is how to use a secured credit card like a pro:

1. Choose Your Card Wisely

Apart from the security deposit, you need to consider how much interest a credit card charges. The APR for secured cards is normally high and constant. It ranges around $24% or more which is in contrast to traditional credit cards that have an APR range of around 13.99% and 24.99%.

Another factor when choosing a card is the reward terms. Such include:

Zero charges on international transfers
Cash backs on restaurant and gas station payments
Zero annual fees

2. Use the Card

Basically, once you deposit the security, the issuer expects you to start using the card. Wise usage calls for not maxing out your limit. You also need to keep a low card utilization; the percentage of the credit you are using is against your limit. The ideal credit utilization for building credit is 30% and below.

3. Make Timely Payments

The whole point of getting a secured credit card is to create a stellar credit history. As such, you have to make timely payments on the card to avoid penalties that lower your credibility. Why? As a factor in credit score calculations, payment history weighs the most at 35% of the total score.

4. Graduate to a Traditional Credit Card

If you use the card diligently, then after a year or thereabouts, your credit score will get a much-needed boost. It follows that you’ll stand a chance of qualifying for better terms on other credit lines. At such a time, and considering that you’ll have learned to use credit wisely, apply for an unsecured credit card. Also, keep in mind that the APR for secured cards is high and could be unattainable for years on end.

The Takeaway

Secured credit cards are a godsend to individuals with no or low credit scores. It is easy to apply and get approved for the card and with the right usage; you’ll see your scores improve in 6 months or so. That said, the card comes with a high-interest rate and you must pay the deposit before the credit becomes accessible.