Building and/or Restoring Credit

Excerpt Adapted From: The Financial Shepherd-
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

In building or restoring credit, the goal should not be to have no credit at all, but rather to use your credit wisely. Use credit as a resource, not as an emergency reserve fund. Credit not only affects your purchasing power but it can affect getting a new job or getting life insurance to protect your loved ones. The goal is to achieve a high credit score of 720 or above. There are several easy ways to help build up your score.

1. Pay your bills on time. Make sure you follow your budget and make timely payments every month or however often your payment plan requires. In order: God first; pay yourself second through savings or investments; then pay creditors. Even when you slow pay (pay late but before 30 days past due), it still reflects a negative image to your creditors. You want to be able to have more credit than you will ever need, and paying bills on time helps accomplish this goal.

2. Start early on obtaining credit. I know that this sounds backwards, but it’s true. The longer you have a credit history the better your record. Even after you pay off your credit cards, keep the oldest accounts open, because the longevity of credit history helps improve your score.

3. Keep the credit lines with the largest limits open. If you have a HELOC (Home Equity Line of Credit) with a $0 balance, don’t close it, keep it open because it helps your score.  Creditors look to see how you handle having credit, and if everything you have is “maxed out” then it makes them feel you are in a crunch and either they will deny credit or they will approve you with less favorable terms.

4. Don’t have more than four revolving lines of credit (credit cards). Keep open the accounts that you’ve had the longest and that have the highest limits. I am not a fan of store credit cards because they do not have high limits and they tend to lower your credit score. Stick with Visa, MasterCard, Discover, and American Express.

5. Pay off your credit balance every month. Not only can this improve your score and help rack up those reward points, but it also puts the creditor at ease and gives them a reason to raise your credit limit which helps your score.

6. Limit your credit applications. Numerous inquiries on your credit hurt your score. For example, when you are shopping for a mortgage, find out the best terms from your lender in advance. Only when you are ready to proceed should you commit to a credit inquiry.

7. Check your credit at least once a year. The federal government allows consumers a free yearly free credit report. Visit to request a copy. The website gives consumers access to receive a free credit file disclosure (not a credit score) once every 12 months from each of the three nationwide consumer credit reporting companies (Equifax, Experian, and TransUnion).