Prepare for your next big purchase by building your credit score

Whether you're preparing to purchase your first home or a new car, it's essential to be prepared to make an offer when the right opportunity arises, and that requires having a good credit score. A clear understanding of your credit score, what a credit score is, and how it impacts your purchasing power can help simplify the entire process.

It's important to know how your credit score can be positively impacted by your actions over time. A good credit score can dramatically improve your financial buying power, from being able to purchase a car or a home to securing better insurance rates. With the right knowledge and preparation, you'll be well on your way to achieving your dream of home or car ownership.

Small steps to increase your credit score

There are several small steps that you can take to enhance your credit score. A higher credit score can help you save hundreds or even thousands of dollars throughout the lifetime of a loan. Below, let's go through some examples of steps you can take toward improving your credit score.

1. Pay your bills on time. Making timely payments of your bills can help increase your credit score. While not all bills get reported to the three main credit reporting bureaus, certain monthly payments such as mortgage payments, credit card bills, and car payments are reported regularly. By making these payments consistently, on time, and paying off what you owe, you can establish a positive habit to build your credit score.
2. Keep your credit usage at 30% or less of your total credit limit. To maintain a good credit score, you should not use more than 30% of your total credit limit at any given time. It is okay to have multiple credit cards, as cards with no balance will be counted in this calculation. Closing a credit card with a $0.00 balance may negatively affect your credit score because it changes your credit mix and calculation. Additionally, consider the number of accounts you apply for in a short period of time, as that may also negatively impact your credit score.
3. Review your credit report every year. Many people do not realize the state of their credit score because they do not regularly review their credit reports. You should review your credit report annually.  You can obtain a free credit report from each of the three credit bureaus (TransUnion, Experian, and Equifax) at annualcreditreport.com and check for any inaccuracies. It is important to obtain a free report from each of the three credit bureaus as some creditors only report to one or two of them, but not all three. Pulling a report from all three will give you the most complete look at your credit history and make it easier to determine the best course of action.
4. Time matters. It's important to note that rebuilding your credit can take longer than damaging it. The exact time it takes to rebuild your credit can vary depending on factors such as the severity of the damage. However, there are steps you can take to improve your situation. After assessing your credit, if there are no immediate actions to take, don't worry—patience is key. By keeping your credit use at or below 30% of your credit and paying your bills punctually for six to twelve months, you should see an improvement in your credit score.

It is also important to be aware of how often your credit report is pulled in a short period of time. As we discussed above, you should check your report annually, but allowing your credit report to be pulled by applying for multiple loans or credit cards within a short period of time could negatively impact your credit score.

Let's review:

Preparing well for a significant purchase is crucial, and a vital part of this is a good credit score. If after review, your score isn't where you want it to be, there are practical steps you can take to improve it. When the time comes to finance your next big purchase, remember that Simmons Bank is here to support you and help make your dream purchase a reality