Everybody have the same question that How to Build Good Credit when you dont have any credit history. well, good news is that if you start now and you can have a good credit within short span of time.
There are many people I've talked to that have already begun to bury themselves in debt. So before builiding a good credit if you dont have any debt that the best part. So let's look at how to go about building it the right way. To me, I think a great place to start is to understand how credit is measured. It's all about your credit score. So let's look at what goes into the credit score to help you understand what actions you should take and what actions you should try to avoid. There are five major components that typically make up one's credit score.
The first component, and it's the biggest one, is payment history, or how well you manage the credit you've been given. As you can see, it accounts for about 35% of the overall score. The second component that goes into a credit score is the length of that history, or how long you've had the credit. And you can see that represents about 15% of the total. The next piece is how much you owe as a percentage of the credit that's available to you. As you can see here, that accounts for about 30%. Finally, 10% of your score is determined by the types of credit that you have, and 10% comes from credit applications or inquiries. So with these components as a backdrop, let's look at some of the things you can do that will help you get a good credit score, and some of the things you could do that would hurt you.
One of the first helpful actions you can take is to get started. It's called credit history for a reason. Remember, this makes up about 15% percent of your overall score. The next helpful action you could take would be to make timely payments. The idea here is once you get this going, you don't want to mess it up. So make sure you always, always pay on time, or even early if you can. I tell people if you need to, set up an automatic payment so that you don't ever have to think about it. You just don't ever want to be late. Remember, how you manage this credit that you've been given makes up about 35% of the overall score. The final helpful behavior that I'd like to address today is to limit your use of the credit. Why? Because the amount you owe, as you can see, represents about 30% of your credit score. Coincidentally, that's about the same upper percentage limit of your available credit that you should use. So as an example, if you had a credit card with $1,000 limit on it, and you needed to borrow something, or needed to buy something and use that credit card, if you need to carry the balance, you should try to keep it below $300.
Just because a company gives credit to you or makes credit available, doesn't mean you have to use it. So now that we've looked at some of the helpful actions that you can take to help your credit, let's look at some of the things that could hurt it, and things you should try to avoid. First would be missing or making payments late. Just as making timely payments positively impacts your overall score, doing the opposite, making payments late, is going to negatively affect your overall score. The next hurtful thing that you can try to avoid is closing older, unused cards. Why? Because if you close an older card that you no longer use, it can negatively impact your score in two ways. First, it's going to remove established history from your credit record. And second, it can cause your ratio of utilized credit to increase. Remember, we're trying to keep that below 30%.
The final hurtful action I want to discuss today is having too much debt. The bottom line here is don't overdo it. Remember, everything that you buy and use credit to pay for, whether on a credit card or some type of loan, has to be paid off eventually. Finally, when it comes to credit and debt. Please heed this warning. Be careful. Always treat credit with the respect that such a valuable and dangerous tool demands. You want to establish budgets, you want to save regularly, and you only want to use credit when it's absolutely necessary.
Good luck to in the journey of making credit in a legal way.