4 Basic Rules On Building A Good Credit Rating
You will need a good credit score at some point of your life, and you need to build one early on. Building a decent credit score will take you a lot of years. A credit score is not like a race entry wherein you can put the pedal to the metal and expect to get to the finish line in seconds. Instead, it is more like your driving record. Everyone wants to see all the violations to see how good of a driver you have been. This is why it is important to be knowledgeable about habits that would build a good credit rating early on. Here are some of them:
Apply for a Secured Credit Card
If you are in for building a good credit score from scratch, it is very practical to start with a secured credit card. Unlike the typical types where you get to loan as much as much as you want, only to get the shock of your life once your bill comes out, that will not happen here. With a secure credit card, you have to back up with a cash deposit which is also how much your credit limit is.
You can enter into a lot of transactions with this kind of card. You can book flights, book hotels, order anything online, however, you also get charged for interest if you do not pay your balance in full. If you ultimately fail to make payments, your cash deposit will be used as collateral. Once you close your account, you will receive your deposit in full.
These, however, are not meant to be used forever. The purpose of this kind of card is to be a starting point so that you can build enough credit rating until you are qualified to apply for an unsecured type.
Watch Your Balances
Banks take your balance very seriously. This is one of the biggest factors when it comes to how you will be rated. As much as possible, banks want to see how much revolving credit you have against how much you actually spend on a regular basis. Of course, the smaller the percentage is, the better your credit rating will be. Ideally, banks want to see such percentage at thirty percent or lower.
You might not know that even if you pay your balances in full each month, you can still have a higher utilization ratio than you would expect, This is because some issuers use the balance on your statement as the one which would be reported to the bureau.
Only Borrow What You Can Afford to Pay
Thomas Jefferson once said “It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.” Of course, Jefferson was looking way deeper than any of us would when he said this, but the thing is, you definitely would be in a lot of trouble if you push your credit too far.
When you only borrow what you know you will able to pay effortlessly when it becomes due, it lets your future creditors know that you are a responsible borrower. This gives them the impression that their money is safe with you. If you are able to establish this, you will find it much easier to obtain loans.
Pay Your Bills on Time
You cannot avoid bills, so might as well pay them on time. This might seem like a monthly punch to the back of your head, but even paying your bills on time can have a good impact on your credit rating. In fact, one of the biggest contributors to a good credit score is merely the habit of paying bills month after month.
A credit rating is simply how they see how responsible you are with money. If you do not pay your bills on time, there could be something wrong with you, so a lot of your lenders would not feel safe in lending you their money. This extends to a lot of things, a lot of them are not even associated with banking or credit reporting such as library book rentals.
Getting credit is a long term commitment with long term benefits as well. With good financial knowledge and the right habits, you will reach your credit goals sooner. What other tips can you recommend to build a good credit rating? Share them with us in the comments below.
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