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Building your credit: Myths and reality
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Building your credit: Myths and reality

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What is a digital wallet? Ten things it can do to safely simplify your financial life. Sara Rathner, a credit card expert at NerdWallet, explains what a digital wallet can do for you.

When the COVID-19 pandemic hit last year, people were overwhelmed by the logistics of sudden and swift stay-at-home orders. Between school closures, supply shortages and new ways of working, there was little time for much else. As many adjusted their spending habits, they also took the time to think more critically about their finances — and some of the government-mandated credit concessions made monitoring credit an especially good idea.

A new NerdWallet survey conducted online by The Harris Poll in September asked more than 2,000 Americans how they have managed their credit score during the pandemic, beginning in March 2020.

Respondents were also asked to identify common misconceptions about credit scores. The results reveal that plenty of misinformation about credit exists, but it’s possible to cut through the fog and build your score. The first step is some myth-busting.

So, what’s true about scores and how to build them?

A few time-tested strategies will help you build your credit. Here’s how to focus your actions on the scoring factors that matter most.

Pay on time every time

Paying bills on time is essential for building credit or maintaining strong credit because payment history is the single most important factor in credit scores. In fact, a payment 30 days or more past due can drop a good credit score 100 points.

If you’re finding it hard to manage multiple due dates, try automating your payments — or at least minimum payments — so you don’t miss one.

Use credit lightly

Using a maximum of 30% of your credit limits is another key for building a strong credit score, although remaining under 10% is ideal. Stay on top of your credit usage by keeping your credit limits in mind as you spend. Two strategies that can help you stay below 30% are tracking your spending and setting balance alerts. Requesting a credit limit increase is another option to consider.

Pay off card balances in full each month

Paying off your credit cards every month saves you in interest and may help keep you from overspending. If paying off your balance once a month proves difficult, try making smaller payments a few times a month.

Keep your oldest credit accounts open

The longer your credit history, the less risky you seem to potential lenders. Keeping your older credit accounts open is a great way to show you have a long and established credit history.

If you’re new to credit, you can ask to be added as an authorized user on someone else’s credit card account. Choose someone who has an established account and an excellent credit score. That person’s account history and credit limits will be added to your credit reports.

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