7 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 get one.

 

How Credit Scores Are Measured

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 Card Balances

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 Time

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 Move

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 debts.

 

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

For first-time 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.