Building Your Credit Intelligently

When I was a kid, I remember one of my neighbors telling me that I should get a small loan when I turned 18 to start building up my credit. His advice to me was to take out the loan and then pay it back according to on time and on schedule. But if I paid it off too early, he said, it would do little to start building up my credit.

I know it’s strange to think that I would have cared about this advice when I was just a kid, but always being a pretty “thrifty” person, I remembered that advice. Now, years later, I realize that this guy really didn’t have any idea what he was talking about.  I’ve discovered that building your credit intelligently, the smart way, is not that complicated … it’s actually a much simpler proposition than most people realize.
The fact is that it doesn’t matter if you pay off your loan or credit card bill early or if you space it out and make the payments on time and as required. So long as you’ve established a line of credit, utilized it, and then paid it back in a timely fashion, you’ll start building a solid credit history.

Unfortunately, the myth still remains that you should space out your payments if you want to build your credit history and subsequently your credit score. As a result, some people that could easily pay off their credit cards on time are floating their card balances from month to month and paying finance charges for the sole misguided purpose of trying to improve their credit scores. Not only is this an incredibly expensive proposition considering the APR’s on credit cards these days, it simply doesn’t work.  Actually, you can hurt your credit score significantly if you over utilize the limit on your card. Using more than a 30% utilization rate on any one credit card can negatively impact your credit score in a big way.

If you are trying to build your credit, don’t take out loans just for the sake of having it on your credit history and don’t maintain a balance on your credit card if you’re capable of paying it back. Rather, use your card on a regular basis and pay it off each month so you can build a solid credit history without incurring unnecessary finance charges.

To make sure you’re getting the benefits you need to build your history, you should check your credit report every 6 months to make sure your account activity is being reported accurately. If your account activity is not showing up accurately, you should check with each company or bank that has issued you a credit line and find out why the activity on your account is not being reported properly.