Using Credit Monitoring to Build Credit

Put some strategy behind your goal of achieving a better credit score.

For most people, a credit monitoring service is often a tool you use when you’ve been the victim of ID theft. Your personal info gets stolen, so you use credit monitoring as a means to make sure your information isn’t being used to open or use credit in your name.

But really, that’s only half the story. Yes, it’s important to use credit monitoring for identity theft prevention. However, what about when you’re just trying to build credit on your own?

Fact: One of the benefits of credit monitoring is seeing information from all three credit bureaus at once.

Why would I need to monitor while building credit?

It’s simple – how are you supposed to know that the steps you’re taking to build credit are working if you don’t know your credit score?

Credit monitoring services give you access and alerts on your credit reports, but they also typically provide your credit scores from all three bureaus as well. So if you’re trying to build credit, you can sign up for a credit monitoring service to establish the baseline credit score that you need to build on.

Then, each step you take to improve your credit can be monitored and tracked to see its impact. Armed with this information, you can also decide when it’s the right time to pull the trigger on major purchases like a home or a car – and when it’s the best time to apply for a new credit card.

If your credit score is maximized when you do any of the above, you can qualify for those really good advertised terms and rates on new credit. Getting the lowest interest rate possible on your credit cards is also a big advantage in saving money over the life of your debts.

What steps should I take to build credit effectively?

There are three basic steps you can take to begin establishing a solid credit profile that helps you achieve the credit score you want and need:

  1. Always make ALL debt payments on time. Credit history is the biggest factor in determining your credit score, so late payments kill any effort you’re making to build a better score.
  2. Keep debt minimized. Ideally, you want to be utilizing no more than 15 percent of your available credit limit on each credit card you’re using.
  3. Make sure penalties get removed on time. If you’ve had trouble with credit in the past and you’re trying to rebuild, then the best thing you can do for your credit is to make sure credit penalties get removed when they’re supposed to be.

Credit monitoring services help with all of those needs – particularly the last one.

Click for free credit score and $1 credit report

Maximizing your credit before a major purchase

So you know low interest rates are essential to a health financial outlook. The lower your rates, the more you save on interest charges over the life of your debts. It also means you eliminate debt faster and usually have an easier time avoiding problems.

With that in mind, it’s always a good idea to make sure your credit score is maximized as much as possible before a major purchase. Particularly for your mortgage, just a 0.5% difference on your APR can be a huge difference in what you’ll pay over the life of your loan.

Pop Quiz

If you have a $150,000 traditional 30-year mortgage, about how much MORE interest will you pay over the life of the loan at 4.5% APR versus 4.0% APR?

a) $10,000

b) $15,000

c) $20,000

d) $30,000

Reveal Answer

b) $15,000 – to be exact, the interest will cost $15,805.81 more at 4.5% APR. You will pay $123,610.07 in interest charges over the life of the loan, versus the $107,804.26 you would pay at 4.0% APR.

Return to question

So interest rates matter… a lot. This means it’s really worth it to do what you can to maximize your credit score before a major purchase. But how do you do it?

There is no quick fix or easy path to a perfect credit score. Instead, you need to take steps that help you build a solid foundation that allows you to work towards achieving the credit score you want. The steps below can help you get started:

  1. Sign up for a credit monitoring service to see where you stand.
  2. If you’re taking out a loan or applying for a new credit card, you want to do this at least 6 months to one year before you borrow so you have time to get ready.
  3. If your credit score is lower than expected, review your credit report to see what negative items may be hindering your ability to achieve a high score.
  4. If some negative items cannot be verified as accurate, take steps to request that those items are removed from your report.
  5. Take steps over that time to minimize your debt load as much as possible. In general, credit card balances should be no higher than 15 percent of each available credit lines.