Your credit score enables money lenders to decide whether or not their loan will be repaid on time. A good score is important in your financial life: the higher your score, the more likely you are to qualify for credit cards and loans at the most favorable terms. So if you are wondering how to build credit with bad credit, read the points below.

Want to know how to build credit with bad credit? Here’s how you do it:

Always Pay Your Bills on Time
When reviewing your credit report, all money lenders are interested in knowing how reliably you pay your bills. This is primarily because past performance is considered a dependable forecaster of future performance. So, paying your credit card bills as well as loans that you may have on time can positively affect your credit score. Paying late or settling an account for much less than what you originally agreed can harm your credit score.

Keep Balances Low on Credit Cards
The credit utilization ratio is another very significant factor that helps to calculate your credit score. This ratio is calculated by totaling all your credit card balances and then dividing the sum by your total credit limit. Lenders, typically like ratios that are below 30%. Simply put, those with high credit scores have low credit utilization ratios. To positively influence your credit utilization ratio, it is advisable to keep your credit card balance low and pay off all the outstanding debt.

Open New Credit Accounts Only When Needed
For those unaware of how to build credit with bad credit, this is one of the important tips that you must remember. Avoid opening new accounts simply to have a better credit mix. From raising several hard inquiries on your credit report to alluring you to overspend, opening too many new accounts is a bad way to go.

Don’t Close Idle Credit Cards
Keeping idle credit cards open is a good idea. But make sure this doesn’t cost you any money in the form of annual fees. Closing an account may increase your credit utilization ratio, and this, in turn, may bring down your credit score.

Don’t Excessively Apply for New Credit
Opening a new credit card can boost your overall credit limit. However, the act of applying for credit initiates a hard inquiry on your credit report. Having too many inquiries is typically not considered good and may lower the credit score. But it must be noted that hard inquiries remain on the credit report for only two years.

Carefully Check Your Reports
Any inaccuracies on your credit report can be very detrimental to your credit score. So, make sure that you verify all information listed on the report. If you come across any discrepancies, get it rectified right away.

With these simple tips, you can now know and understand how to build credit with bad credit. You can also take the help of a good financial advisor.