No credit and “bruised” credit can keep you from buying a home, having lower insurance payments, and sometimes even from getting a job. This is why it’s so important to build stronger credit.
The first thing you will want to do is pull your credit in a way that it does not impact the score. Credit Karma appears to work the best – it is free to use and will not affect your credit score.
If you find that you have no score, then you will want to start build trade lines. (An example of a trade line would be a credit card or car loan.) To take the first step toward building your credit, apply for your first credit card. Your best decision would be to stop in at the local banking institution with which you already have a relationship and explain that you are looking for a credit card that is connected to an account, a “secure” credit card. This will discipline your mindset to only spend what you have in that account and still help build your score.
Anything you do that involves credit becomes part of your credit history, a track record that shows how you pay your bills. To have a good credit history, you have to use credit responsibly. Some individuals who are applying for a first credit card will accumulate a collection of credit cards thinking that more credit is better.
BONUS INFO: Not being able to close your wallet because of too many credit cards does not show financial stability as well as your wallet not closing because you have to much green money in it.
Don’t make the mistake of opening up too many credit cards too soon. The more credit you have, the more you’ll end up using, and the harder it will be to keep up with your balances and payments. In addition, too many inquiries into your credit and too many new credit cards can negatively affect your credit score.
Only borrow what you need!
If you go out and apply for a credit card or maybe a retail store entices you to apply to get 50 percent off on your order, beware…they may give you a credit limit that is five times what you really need. The risk is that you will begin to think if you have the credit limit, then you can spend the limit. When you get into the habit of charging only what you can afford, future lenders and creditors will know that you are responsible with how you pay your bills. You’ll find it easier to borrow money and get new credit when you show that you know how to only borrow what you can pay back.
BONUS INFO: Spending what you can afford or will be able to pay at the end of the month helps you avoid excessive debt and supports a less stressful life.
The same thing goes for loans. Only take out as much money as you can afford to repay, regardless of what the lender says you qualify for. Before you shop for a loan, review your budget to see what monthly payment you can afford. Make sure your loan payment doesn’t exceed the amount you’ve come up with.
Do not use your entire credit limit.
The lending world view is that people who max out their cards often have difficulty repaying what they’ve borrowed. Staying below 45 percent of your credit limit is wise; below 30 percent is best to build good credit. This will also give you additional points on your credit score, along with points for paying on time. AND a last little bit of information…
The longer you’ve had credit, the better it is for your credit score. Leave your oldest accounts open since they help increase your credit age and build good credit. Closing an account won’t immediately remove it from your credit report. But after several years, the credit bureaus will eventually drop old, closed accounts from your credit report.
Check out the video below for some other great tips.
As always, I am here for all of your questions. “Ask Annette” here on the Farmington Voice.