May 5, 2011

Credit Building 101

A good credit score goes a long way toward building the future you desire. The best time to start building good credit is while you are young; starting from nothing and working toward good credit is easier than trying to repair bad credit. Nevertheless, many of these steps are the same, and anyone interested in obtaining an excellent credit score should consider them.

Little Things Mean a Lot

One of the most basic ways to improve your credit is by paying bills on time. Take note, “on time” means not even one day late. Utility companies, cell phone providers, and your apartment manager all report your payment information to the credit agencies. When prospective creditors check your report, you do not want them to see any late or missed payments. Pay on time, every time. 



Your Bank Account

Be sure you have at least a checking account; a savings account is an added plus. This is helpful for making timely payments because you can arrange an automatic draft from the account, and your bills are paid for you each month. When you are choosing a place to open an account, consider a credit union; they are a bit more lenient on extending credit than the banks, and the terms can be more budget-friendly as well.

Store Credit

When you have no credit, it is hard to get a credit card. Stop and think for a moment, however. Do you really want a credit card? The answer should be no. Credit cards can lead to worrisome debt quickly. The best way to safely build credit is to use a retailer’s card to make small purchases that you pay off right away. Store cards are easier to obtain than big name credit cards. However, never let yourself think that you can afford something just because you can make a minimum payment; that’s the number one way to get in over your head.  The exception is getting a low balance “secured” credit card and making 2-3 times the minimum payment each month.

Loan Co-signers

If you want to buy a car but have no credit history, you may be required to provide a co-signer. This means that if you do not pay as agreed, the lien holder will go after the co-signer for the debt. This is not a position you want to put anyone in, but sometimes it’s the only way to get the loan. Once you have paid off a loan that was co-signed, you will most likely qualify for a future loan on your own next time. Remember, nobody enjoys being a co-signer, so don’t let yours down by making any late payments.  For long-term loans, consider restructuring the loan after one year in order to release the co-signer.

An Action Plan

Many times people develop bad credit because of situations beyond their control. One thing that must be done to repair bad credit is to pay off debt. A good example of a simple “debt repayment plan” is to take the account with the smallest balance and work toward paying it off. It won’t take as long this way because the starting balance is small, and it is satisfying to see the bill go away. Then take the money you were paying on that account, and add it to the amount you are already paying on the next smallest balance. Keep this up and you will quickly see the light at the end of the tunnel.

Building a good credit rating takes work, sacrifice, determination and willpower. It is something that is within everyone’s reach, but many times it is not a fun process. Remember that good credit offers you a feeling of security, and the opportunity to creative the life you want to live. Work diligently to build and maintain your good credit, and always keep your financial goals in sight.

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