Building credit is essential if you ever want to buy a car or house without paying the entire amount in cash. Good credit will give you better interest rates and will make getting loans easier. To get good credit, you need to build it carefully and deliberately. Here are four credit-building tips that you need to know and practice.
Get a Starter Credit Card
When you are just starting out, you don’t have a record of credit. In fact, you don’t even have a FICO score. Without that critical history and score, your options for getting a credit card are limited. However, there are some credit cards you can use.
Starter cards come with a low limit, usually less than $500. They have a higher interest rate and an annual fee. But, they report your payments and help you establish credit.
Secured credit cards involve depositing a set amount of money in the bank that matches your credit limit. You make payments and those are reported to credit agencies.
Make Your Payments on Time
Whether you have a credit card or a car loan, it is essential to make your payments on time, every time. Late payments or payments for less than the due amount will hit your credit score quickly. A single missed payment can drop your FICO score by 50 to 100 points.
Know when every bill is due and pay it before the due date. Sitting down the day after you get paid to pay bills will help you keep your payments up to date.
Don’t Max Out Your Credit Cards
A big mistake many people make is to max out their credit cards. That is a big mistake. Thirty percent of your credit score is based on what your balance is in relation to the credit available. The higher the balance used is, the lower your credit score is going to be. Ideally, keep your balances at 10% of available credit or lower.
If You Invest, Do So Wisely
Many people who are learning more about credit and finance, in general, find themselves drawn to the world of investments. There is nothing wrong with investing, and investing in reliable businesses can help you establish your financial health – which indirectly affects your credit health in a big way. The key to that equation is to invest in reliable companies that have exhibited consistent, long-term growth, rather than searching for get-rich-quick situations. Researching and keeping an eye on the companies you plan to invest in is crucial to make sure your investments continue to benefit you.
If you’re just starting out in investments with small amounts of money, you can probably handle this research on your own without too much trouble. If, however, you have or are planning to have a significant amount invested in a variety of companies, it could be worth your while to pay for the services of someone like CreditRiskMonitor or a similar business.
Company’s such as these employ professionals to watch the spending habits, financial decisions, and overall credit health of publically trading companies, and report this information to their clients. Having this crucial knowledge can make the difference between financial stability, and staggering loss that could harm your credit, and your financial health in general, beyond repair.
Whether you’re a college student fresh out of high-school, or a parent trying to buy your next house, your credit health matters. Keep these 4 tips in mind and you will be more likely to make choices that will help you in the long run.
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