Strategies For Building Good Credit
Strategies for Building Good Credit
Good credit plays an important role in your financial life. Not only is it essential for obvious things like qualifying for a loan or getting a credit card, but also for less obvious things like getting cellular telephone service, renting a car, and perhaps even getting a job.
Managing your credit will also help you save for a rainy day. A strong credit history, reflected in good credit scores, will let you qualify for lower interest rates and fees, freeing up additional money to set aside for emergencies, retirement, and other smaller unexpected expenses. Decreasing debt and increasing savings reduces stress and leads to greater financial freedom.
The good news is that having good credit is not as difficult as some people think. Simply follow these fundamentals of good credit management and you will build and maintain a credit history that will enable you to get the credit you need.
1. Establish a credit report
To establish a credit report you must have an open, active credit account. Paying cash for everything is great for keeping you out of debt, but if you ever plan to finance a house or a car, begin establishing your creditworthiness early.
2. Always pay as agreed
Make at least the minimum payment due each month and never be late. Delinquent payments and payments that don’t meet at least the minimum contractual amount will have the most immediate, negative impact on your credit scores.
3. Keep your balances low
Keeping your balances low as compared to your available credit limits is a sign of good credit management and shows lenders you are a good credit risk. Your credit utilization rate, (or balance-to-limit ratio) is a large part of your credit scores.
4. Apply for credit wisely
Do not apply for multiple accounts in a short period of time. Taking on large amounts of debt in a short time is a sign of high credit risk. Apply for credit when you need it, and only in the amount you need. Just because credit is offered, doesn’t mean you have to accept it.
5. Demonstrate good credit habits over long periods of time
In order to have good credit scores you must demonstrate a habit of good credit management over a long period of time. There are no quick fixes, so don’t fall for it when unscrupulous companies try to sell you credit repair services.
6. Check your credit report
Check your credit report for free at least once a year. It will help you gain a better understanding of your current credit, and will highlight opportunities to improve your credit score. Note: checking your own credit report does not hurt your score; it hurts when too many lenders pull your credit.
7. Save, save, save
Set aside a small percentage of your income, no matter what. When you boost your savings, you may also indirectly help your credit score. Extra money in the bank will make it much easier to keep up with bills and minimize debt — and that can improve your credit over the long term.