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Surviving in today’s world without credit is like trying to navigate a rushing river without any oars. Credit is a tool that you simply must have to survive these days. Ignore it, and you’ll be headed for the rocks before you know it, at your own peril. Although many people grumble about the confusing world of the almighty credit score, the fact of the matter is that you really do need good credit to live in today’s society. Your credit score is an indicator that tells people (mainly other lenders) if you’re trustworthy enough to pay back any money you borrow. Your score also increasingly being used for other things as well, such as how much you pay in auto insurance, if you can rent a car, or whether you can even rent an apartment. As the importance of having good credit grows then it’s vital that you understand what gives you a high score and how you can push that score even higher as the years go by. What should your goal be? Well, if you want to aim high then shoot for a score that’s over 800. Only about 11% of the population has such a great number, and if you pass the 800 mark then people will be standing in line to give you their money. The average American has a score from 750-799.  So, let’s get into it. We’ll start with the basics first, like how to establish credit.
The first thing you’ll need to do is open a bank account. You have to start proving to people that you can manage money, and opening a checking account is considered the base of the pyramid. The next step you’ll want to take is to apply for some credit cards. Now, if you’re just starting out then you should apply for cards that are marketed to people that are trying to establish credit. Capital One is a great card to start with since they offer cards to people with limited or no credit history. Now, once you have a card (or cards) then it’s important to purchase something at least once per month and to pay the balance off, in full, on time. The whole purpose in getting a card is to prove that you’re responsible with your money. Racking up $2,000 on shopping sprees and then paying the minimum balance two weeks late is NOT the way to build your credit score. Having a credit card does not mean that you have extra money every month to blow. If you want to have a good score then it’s vital that you be conservative with your spending. Pay your bills as soon as they come in, and pay them in full, simple as that. Payment history makes up about 33% of your score, so it’s really, really important to pay on time. Want to make it easy on yourself? Sign up for automatic payments. You won’t have to worry about paying late again. Once you have had your first card for 3-6 months then you can think about applying for a Visa or Mastercard. If you’re finding that you can manage having one card, then it will benefit you to have more than one. If you take out two, three, or four cards, then the amount of money you could be spending goes up, which is a good thing. For example, if you have 3 credit cards that each has a limit of $5,000, then you technically have $15,000 at your disposal. If you’re not maxing out your cards and going hog wild, then this shows potential lenders that you can manage having $15,000 and not blow it. If you want to bump up your score, take out more cards. Sounds backwards, but that’s the way it works. It also pays to keep your cards for a long time. If you are constantly closing out cards and opening new ones then you’re going to look like a new borrower. Leave them open, even if you don’t use them. You’re entitled to a free credit report once per year from the three major credit bureaus thanks to the Fair Credit Reporting Act. Take them up on this offer! By checking your credit once per year you’ll be able to spot mistakes and see how well you’re doing. The three major bureaus are Experian, Equifax, and TransUnion. If you’d like a free copy of your report, you can visit http://www.annualcreditreport.com/. Make sure you spell the site correctly when you type it in- there are some scams out there that promise you a free report if you buy other products. Don’t get misdirected to the wrong site! As you can see improving your credit score is not something that you do overnight. If you’re planning on buying a car or applying for a mortgage, then start trying to raise your score now. Having a higher score means you’ll pay less interest, which will save you thousands and thousands in your monthly payments. As you can see, it really pays off to have a high score! Credit Secrets Bible |