Monday, October 8, 2012

Ten Ways To Build Your Credit

Credit is an essential thing if you want to make any major purchases and don't have the cash to pay for them up front. Most people don't have the means to buy a house, newer car or several pieces of furniture with cash when they need them, leaving them no choice but to rely on credit. When you sign up for a cell phone service, look for an Internet provider or even shop for car insurance, your credit affects if you qualify for certain plans or discounts.

These ten tips will help you build your credit, improving your purchasing power in the future.

1. Pay your bills on time. You must be faithful in paying your debts on time. If you are late in paying your credit card bill or car payment, your creditor might report it to one or more of the credit bureaus, which will in turn lower your credit score. On the other hand, they might report you are paying on time, increasing your score.

2. Have a bank account. If you don't have a bank account, open one as soon as possible. Some banks even offer a fresh start checking account for people who have had financial trouble in the past. Most creditors won't extend credit to you if you don't have a checking account.

3. Ask for help, if necessary. Most people when they are first starting out have trouble getting any kind of credit. Creditors know they are taking a risk on someone who's never paid on a debt before, which is why getting someone like a parent to co-sign helps you establish credit, making getting credit in the future much easier.

4. Get a credit card. A credit card is what is called revolving credit or a credit line you use and then pay off and then use again. For bigger loans like a mortgage, lenders want to see you can handle revolving credit (as well as installment loans). Look for cards that include a small or no annual fee as well as a competitive interest rate. If you can't qualify for a regular credit card, check with your local banks for one that offers a secured credit card, which later will convert into an unsecured card.

5. Use your credit card wisely. Once you have a credit card the temptation will be to run out and buy a bunch of things. Instead of piling up the debt on your card, use it once a month to buy something you would purchase anyway, like a tank of gas. Ideally, you should never carry a balance on your card that's higher than 30% of the card's credit limit. Also, pay more than the minimum payment each month, otherwise you'll be paying down your card for quite some time.

6. Get an installment loan. An installment loan is a loan that you make regular (usually monthly) payments on, like a car loan or student loans. Like with revolving credit, an installment loan will help you qualify for future credit lines. The smart thing to do is to not only pay your bill on time, but to pay more than what you owe, dramatically reducing how long you pay on the loan and saving you a significant amount of money.

7. Monitor your credit. There are many services out there that help you monitor any activity on your credit reports as well as track changes in your credit scores. Find one that provides information from all three main credit bureaus as well as your FICO score for the most complete picture of your credit health.

8. Keep your job. When you fill out a credit application, lenders will always ask information about your current job. One of the big questions is how long you've been working for your current employer. Lenders like stability, so if possible don't job hop. Find a good job that provides you with plenty of money, and then stick around. You will qualify for credit at a lower interest rate if you do.

9. Avoid judgments at all costs. A judgment is when someone is awarded financially at your expense by order of a judge. Usually judgments are rewarded when you don't pay a bill on time. Judgments will be reported to the credit bureaus, and they do significant damage to your score. Most lenders will demand you pay off any outstanding judgments before they extend you any credit. The best thing to do is to negotiate with anyone you owe money instead of letting them get a judgment.

10. Stay on the good side of the law. Most people don't realize it, but criminal convictions can appear on your credit, making it difficult to obtain a loan for years to come. Evictions also are reported on your credit, which also makes qualifying for credit much more difficult.

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