Credit is like an agreement in which a borrower receives a value of something now and agrees to repay the lender at some later date. For e.g.: A consumer buys something from the company with the help of the credit card and later pays to the company every month. Nowadays usage of the credit cards has become vital in the life of the every human being. In a survey, it was being reported that majority of the U.S. citizen has at least one credit card. It allows you to make purchases every month and makes the life easier and most importantly it is vital for all the major events in the life.
But building a good credit is very difficult but not impossible. There are several ways in which you can build your creditworthiness. Here I’m giving you a ten different healthy ways on how to build a credit for all the major events in the life.
Check Your Credit ReportBefore applying for the first credit card or approach a bank for a loan, it is important to do the following:
- Check with the credit reporting agencies to ensure there is no false credit report that is open under your name.
- Clear your record with the credit reporting agencies in case someone had already used your details illegally to apply for credit.
- Open a legitimate credit file under your name when a credit card company, bank or other lenders report that you have had an inactive credit account for a minimum of six months.
- Check your credit reports at least once in a year and scan the reports for errors to avoid mistakes
- Borrowing what you can afford to repay in time allows your future lenders and creditors to know that you are a responsible borrower.
- It will be easier to borrow and get new credit after indicating that you only borrow what you can repay. Borrowing what you can afford helps you to avoid excessive debts.
- It is important to review your budget before shopping for a credit to determine what monthly payment you can afford.
Use Small Amount of Credit
- Maximizing out credit cards is being financially irresponsible, especially if you do not have a plan to pay on time. Lenders know that those who maximize their borrowings have difficulty in repaying back their credit.
- It is wise to stay below 50 percent of your credit limit and staying below 30 percent of the credit limit is the best way to build a good credit.
Start with One Credit Card
- Many people accumulate several credit cards in their first few years of using credit. An individual should not make the mistake of opening up many credit cards within a short time.
- The more credit one has, the more they will end up using them and the harder it will be to maintain your balances and payments.
- Many inquiries into your credit and many new credit cards can have negative effects on your credit scores.
- Therefore, it is important to learn how to be responsible for the first credit card before applying for new credit cards.
Paying Credit Card Balances in Full
- In order to pay card balances in full, it is important to only charge what you can afford.
- Paying off your full balances each month indicates that you are able to manage your bills, which is something creditors would love to see and also it improves one’s creditability.
Longer credit, better credit score
- The longer you have had credit, the better it is for the score of your credit.
- Leaving your oldest accounts open is important because this will have an increasing the age of your credit and build good creditability.
Address Issues Affecting the Credit ScoreThere are several ways in which the score of a credit card may go low, depending on a borrower. These include:
- Late payments
- Collection accounts
- High Balances
- Few credit entries for evaluators to determine its creditworthiness.
- Credit Reporting mistakes
Opening a Bank AccountEven though a bank account does not influence the credit score, a relationship the credit holder has with the bank might provide financial opportunities.
- Having no overdraft may give the credit holder an opportunity to borrow either from the bank or other creditors. It is also important to evaluate terms and conditions of a bank based on credit card uses.
Maintaining Steady EmploymentEven though employment is not part of the credit score, it indicates a good creditability and clears up the credit history.
- Lenders prefer seeing their borrowers working on a permanent basis.
- Part-time jobs and long periods of unemployment are deemed insecurity by the lenders.
- For unemployed to qualify for a loan, he or she must document other resources for a collateral proof.
Getting a Secured Credit Card
- A secured credit card is guaranteed by the deposited cash. The card does not present the opportunity for the consumer debt the way a regular card does.
- A secured credit card is used like any other credit card to buy goods and pay the bills when the goods arrive.
- The cardholders’ credit limit is the amount of collateral or cash deposited on the card’s account.
- Even though the deposited cash act as collateral, you have to pay the balances every month like any other credit card without spending the collateral.
Use Credit Cards ResponsiblyThis is the most important tip for everyone. Using the credit cards responsibly helps one to build a good credit.
- Checking your budget. Budget on how much money you are coming in and how much money you need to save helps one to improve the credit score. Scrutinizing the budget and sticking to the budget is very important.
- Use the cash instead of the credit cards for the small amount of the purchases you made.
- You should be able to make more than the minimum amount of the payment on the card and pay the entire amount month by month.