Top Three Ways To Build Better Credit

It is in the newspapers. It is on the television. Nearly everywhere you turn these days, the topic of personal finance is on everyone’s lips. For many, the topic is not a positive thing. So many consumers are being negatively affected by the shaky economy and forced to take drastic measures to save their credit, their homes, and ultimately their own financial futures.
 

But what about those who haven’t any credit to speak of? Contrary to popular belief, not every person has a credit card. Some people do not have established credit yet. Whether it is a college student just starting out or an adult who lived only on cash, there will most likely come a time when a credit history is necessary, such as for first time homebuyers. For people who have relied on cash (or their parent’s cash) up until then, the methods for establishing credit may not be so easily understood. Nor is the fact that establishing good credit from the get-go is a necessity.
 

What Can You Do?
First and foremost, good credit doesn’t just happen and establishing credit in general, doesn’t just happen over night. It takes diligence and consistent planning over a period of time. If you are planning on venturing into things requiring credit checks, such as renting a place to live, buying a house, financing a car, or getting a loan, there is no doubt you need to start establishing yourself in the credit world as soon as possible. With the way the economy is at this point, it may now take even longer to reach an excellent credit status than it might have in the past. What was once considered to be a good credit score, now might pass for a fair credit score. Essentially, a credit score of 720 and higher will afford you the opportunities for the best rates for loans, mortgages, and other financing.
 

The other things to consider when establishing credit are the 3 top ways you can start establishing and continue to build up your good credit.
 

1. Buy Only What You Can Afford
Many newbies to the credit card world make the mistake of thinking that using credit cards is like using free cash but nothing can be farther from the truth (or put you in debt faster). Whether you use your credit cards for purchases to get back the rewards offered or to prevent yourself from having to carry too much cash at one time, credit cards should only be used when you have enough cash to cover the purchases. For example, you want to buy a new mattress which costs $1,000. As a rule of thumb, you should refer to your budget and find a way to save the $1,000 in cash before making the purchase. When the bill comes in at the end of the month, you should quite literally have the cash to pay back the balance in full. By buying only what you can afford, you reduce the risk of missing payments or getting into the cycle of only paying the minimum each month. Additionally, by having the cash and paying your balance off each month, you build up a strong credit history, making it all the more easy to qualify for other types of financing due to your solid credit rating.
 

2. Start Small
When you first begin on the road to establishing credit, it may seem that the more credit you have, the faster you can establish credit. However, that is not the case. Each time you apply for credit, the company will pull information from your credit report, which can have a negative impact on your credit score. It is better to apply for and stick with one card that is most compatible to your financial lifestyle. Whether it be a rewards card with cash back benefits or a credit card that offers special discounts at your favorite stores, you should thoroughly research the cards on the markets and choose the one that benefits you the most. Having one card will also help you avoid excessive spending and allow you to keep up with your responsibilities as a credit card holder.
 

3. Don’t Go Overboard
As you begin to establish a positive credit history, your credit card lender may gradually start to increase your credit limits. While this is a positive sign you are on the right track, it can also be detrimental to your responsibilities. The likelihood that the more you have the more you’ll spend rings true for many. If you suddenly find that your credit limit has jumped from $300 one month to $1000, you can contact the credit card company and request a reduction in your credit limit to avoid temptation. There is no written rule that just because you have a credit limit doesn’t mean you have to spend it all. Instead it goes back to the first rule of thumb about not spending more than you can afford. Try to keep your balance 30% below your limit for the best results. With a lower limit, you may be less likely to overspend and will also reduce the risk of going over your credit limit, which will cost you dearly.

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This entry was posted on Friday, November 21st, 2008 at 5:01 am and is filed under Credit Card News, Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.