[ Wish You Had Good Credit? ]

Building good credit is important if you want to be financially successful. The U.S
has three credit reporting bureaus: Transunion, Equifax, and Experian.
They all report different scores and lenders usually go with the
middle score. Having good credit shows lenders that
you are responsible and have the ability to
repay money. Here’s all the ways
to build good credit.

Use Credit

You can’t build a good credit history without using credit. If you don’t have any
credit history, a credit card is the place to start. Usually the bank that
you use can provide your first one. If not, apply for a secured
credit card. For those who already have credit cards,
make small purchases with them monthly.
Bureaus report negatively when
there isn’t any activity.

Types of Accounts

A good credit history is based on three types of accounts or what lenders call
“tradelines”. A credit card is considered revolving debt since there
isn’t a fixed amount of time to pay. The loan can increase or
decrease depending on how you use and pay it. The
second type is installment. These are auto
loans, personal loans, or anything
with a timeframe to payoff.

Mortgages are the third types of accounts. These typically are a large amount
with a long period of time to pay it off. To build good credit, you will
have to establish two or more types of accounts. This shows
lenders that you are capable of handling more than
just one type of debt. I suggest starting with
revolving then getting installment.
A mortgage is optional.

Pay on Time

Building good credit requires that you pay your bills on time. If you are late 30
days or more on any loan, it shows on your credit history. It decreases
the credit score dramatically. The more recent it is, the more
it affects the credit negatively. I recommend paying off
the full credit card balance on the due date
to avoid paying interest. Pay it on
time, your credit will shine.

Revolving Balance to Limit Ratios

Having a $5,000 limit on a credit card does not mean you should use the entire
$5,000. Credit bureaus report positively if your balance is lower than
30% of the limit. So in order to build good credit, your balance
should be around $1,000 only if the credit card limit
is $5,000. However, keeping a $0 balance and
using the card once a month is a better
option if it’s possible for you.

Length of Credit

Good credit consists of a good amount of history. You can’t only have twelve
months of history and expect a lender to trust you with a thirty year
home loan. If you’re just starting off building your credit, it’s
best to get a credit card once every 6-9 months. Stop
once you get 3-5 credit cards. Also, keep cards
open because once you close them, all
the history with it is deleted.

A way to speed up building credit is to “borrow credit”. This means getting
someone you trust to add you on to their credit card. If you’re added
today and they had it for 3 years, the entire 3 year history
belongs to you too now. Be careful though. If they
had late payments, those are yours too. If
they have a balance, that balance
is yours if they don’t pay.

Inquiries

Applying for loans frequently hurts your credit score. It shows you’re
eager to get new loans at a fast pace. Try to keep applications
down to only once or twice a year. Pulling your credit
score yourself does not lower the credit score
but keep in mind that the score you get
is not the same lenders will get.
Theirs are usually lower.

Number of  Tradelines

To build good credit, you can’t do it by only using one credit card. Lenders
like to see history with at least five tradelines. Your ability to have
different sources of money and being responsible with each
one means a lot to lenders. Don’t spread your balance
over many credit cards. Use one for keeping
balances if you have to and the others
to keep your credit active.

Available Credit

Be sure not to have tens of credit cards in your wallet. In today’s economy,
a lot of attention goes to what your available credit is too. If you’re
only using $1,000 of your credit but have over $100,000
available, it can hurt your chances of qualifying for
a loan. The lenders take into consideration
that there is a possibility you might
use that money some day.

Check Your Credit

With the alarming number of identity theft, it’s important to build good
credit and KEEP good credit. The sooner you find out if someone
is opening accounts under your name, the more damage
you can prevent. You’re entitled to one free credit
report a year. I recommend also putting an
alert on your credit report. Lenders
will call to verify applications.

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