Ways to Build Your Credit
Nobody wants to be in
debt. We all want to get through life with the right amount of money and the
right ratio of expenses to income, but it’s not always easy to make that a
reality. Unfortunately, life circumstances lands countless people with bills
they simply cannot afford to pay, and debt that keeps increasing and increasing.
The more debts you have, and the less of them you’re able to pay off, the worse
your credit score will be. This may be more important than you realize, as
letting your credit score drop can have wide-reaching consequences.
One of the most significant
of the consequences is the difficulty you will face trying to secure financing
in the future for a variety of reasons; you may have to make repairs on your
car, and need an auto loan; you may have to undertake maintenance on your home,
such as roof repairs, and look to a bank for a home renovation loan; you may
need a vacation and a credit card to make it happen. Whatever the motivating
factors, loans are essential at times, but poor credit can leave you unable to
How Credit Scores Are
Credit scores reflect
your personal creditworthiness and suitability as a borrower. A bank or lender will
look at your score and history, and often make a snap judgment about your
application. A low rating and poor history for making timely payments will mark
you as a high-risk borrower, who may appear unlikely to make payments to the
lender as required. Obviously, financial institutions depend on those payments
to survive, and if a borrower’s rating and history indicates payments are
unlikely to be met, there is little reason for them to grant a loan. This may
be harsh, but the lenders are unlikely to listen to your reasons or offer much
in the way of sympathy.
Credit scores range from 300 to 850, and the most
commonly-used system is FICO, the Fair Isaac Corporation. Any rating at 750 or
higher is considered excellent, 700 to 749 is good, 650 to 699 is fair, and
anything below 650 is regarded as poor. You need to take care with your credit
and spend wisely to keep your score in the good or excellent range. Here are
seven ways that can help you do just that:
Monitor Your Credit
One of the most
important ways to avoid a poor credit score is to stay on top of how much
credit you use, compared to your credit card limits. In general, it’s better to
keep the amount as low as you can, ideally to no more than 30 percent of the credit available. The most obvious and
simplest way to do this is to pay your balances off in full and stop using them
when approaching the limit. While this is certainly easier said than done, it
really does matter. Even by paying your balances in full every month you can have
a bigger ratio of usage than you might imagine.
Certain lenders take
the balance on your statements and report these to their credit bureau, so even
if you do pay those balances off in full, your credit score may not always
reflect that. One effective trick is to try paying your balances off throughout
the month rather than letting them build until the closing days of the final
week. If you have multiple credit cards or loans to cover, staying on top of
your balances can be more difficult, but it’s important to do so. If you have
two or three, or more, credit cards, try to pay off all balances and just stick
to using one or two; spreading your credit can lead to more debt than you can
pay off as you need to. If need be, talk to your lenders about such things as
changing payment due dates and reducing the interest rates.
Be Careful When
Applying for New Credit
Some people think it’s
always helpful to have more credit; the more credit cards or loans you have available
can mean the more you’re able to enjoy a better lifestyle. However, you need to
be careful when applying for credit; do it too often and you could wind up with
a poor or bad rating that makes it harder to get credit in the future. Your credit lines’ average age contributes to your rating significantly, as
much as 15% overall, and the higher this is, the better your score. Individuals
with the strongest credit scores and history have credit lines with an average
age of 11 years, while those with bad scores average around six months instead.
For this reason, if you keep closing credit cards and applying for new ones,
you may be doing yourself a disservice. Keep your accounts open for as long as
you can, even with small charges that you are able to pay off each month.
Don’t Borrow More
Than You Can Afford
Too many credit cards
and loans may make borrowers think they have more money than they really do.
Whether you take out cards or loans to cover special occasions, essential
repairs on your car or home, or to have a little spending money at one time or
another, it’s vital to only go with financial commitments you can afford to
repay. Borrowers who manage to stick with cards or loans they can afford are
much more likely to be regarded as responsible by other lenders in the future.
You will find getting credit and loans is far easier if you have a history of making
payments when due, or even ahead of time, without letting interest build or
missing due dates. Taking care to only get cards or loans that you can realistically
afford minimizes your risk of spiraling into debt.
It’s vital to work out
a monthly budget ahead of speaking to a lender. Make sure you know how much you
can pay back on top of your current expenses, and if your projected payments
exceed that amount, avoid it. Reputable credit-card issuers and lenders will
avoid giving you more than you can afford to pay back, too. While they might
have a chance to get more out of you, in the long run this is unethical and potentially
damaging to their reputation. Be wary of any lenders who try to increase your
credit or loan amount despite you presenting them with your realistic monthly
expenses, and be prepared to say no, no matter how tempting the offer may be.
Pay All Bills on
While not every
monthly payment you make appears on your credit report, any bill can end up
being listed if you fail to pay it on time. Making your payments on or before
their due dates every month can be quite daunting; you may think you can let
one or two bills slide and pay off double the following month instead. However,
late payments are the most common negative feature on individuals’ credit
reports, and can lead to big drops in your credit score. It’s vital to keep
this in mind as your bills continue to come in and you’re trying to manage your
finances. It can be tempting to favor one over another, but covering them all
is the only way to avoid impacting your credit score in a negative way.
Take the time to work
out your monthly payments and note the due dates of all bills. Even missing a
payment by a day or two can have a negative result on your credit report. One
effective way to avoid this is to set up automated payments, if possible. This
means the money will be deducted from your checking account automatically on a specific
day every month. Just make sure you have enough money in your account to cover
the payments, and you’ll be fine.
Watch How Often You
Believe it or not,
moving too often within short periods of time from one house or apartment to
another can have a detrimental effect on your credit rating. For starters, when
you first apply for a new apartment, the owner or management firm is likely to
check your credit history and score. This inquiry into your past will be
logged, and remain on your history for a couple of years. Just like applying
for excessive credit cards or loans, having too many prospective landlords or
managers making a hard inquiry into your past can drag your score down.
Moving too often may also
make you appear to be unreliable or unstable. On top of this, moving from one
property to another brings an additional risk; with all that’s involved with
planning and executing a smooth relocation, you can easily forget to inform each
of your lenders of your new address. Unless you arrange to have your mail forwarded,
your bills may be sent to your former residence, leading you to possibly forget
and miss payments. This would drag your credit score down considerably. Try to
limit how often you move, and always keep lenders informed of your current
address, as they may see your failure to do so as an attempt to avoid your
Pay More Than the
Minimum Monthly Amount
Paying only the
minimum amount of money owed each month might seem like a perfectly fine way to
manage your debts, but be careful. If you only pay the bare minimum each month
for consecutive years, your lenders might take this as meaning you can barely
afford your current expenses. As a result, these same lenders could well refuse
to offer you any further credit or loans in years to come. Try to pay a little
extra on each payment to make a bigger dent on your overall debt and
demonstrate that you can afford to pay off more than the minimum.
Don’t Get Carried
Away with Credit
borrowers, building a collection of different credit cards within a short
period of time can be tempting. The freedom and flexibility that comes with
credit, allowing you to spend what and when you like, can become compulsive.
Banks and lenders might offer incentives and rewards with which to tempt you
into signing up for new cards and loans. You may be promised competitive
cashback, gift cards, freebies, and more.
It’s vital, though, to
ensure you don’t take on more than you can handle. Opening and using too many
credit cards too soon can leave you struggling to cover the monthly payments.
Start off with just one card, get used to it, and think carefully before taking
out another one. This is true of loans, too. If you take out a loan, such as an
auto loan for a new vehicle, you must avoid going for an amount greater than
you financially afford. However, if you have little or no credit history,
taking out a manageable loan can help you build up a good rating over time.
Hopefully, by following these seven tips you should be able to achieve and maintain
a good credit rating for a more secure financial future.
Constant auto loan
turndowns because of a poor credit report can be extremely frustrating,
especially when your need for a new vehicle is crucial to your family or
employment needs. And it can be even more frustrating if you are now in a
better financial condition than you were in the past. That is why Eden Autos
has financing options to meet virtually any personal financial
situation. If you are now able to meet all your existing expenses and make the car
payments, we have plans that will allow you to get the car or truck you need. With
instant credit approval, we are committed to helping you drive away in
one of our quality pre-owned vehicles, with a payment plan you can afford. Give us a
call, or stop by anytime and one of our professional staff will work with you
to make it happen.