RESOURCES
How to Build Good Credit
If you don’t know what your credit rating is, or how those late payments from college affected your credit score, you are not alone. Many people do not realize how their buying and paying habits affect their credit. If you only pay with cash, have no credit cards, or you have never had a loan through a bank, you will not have a payment record and therefore no credit score. A credit score not only tells creditors you know how to make payments on time, but conversely also reveals late payments, missed payments, collections, or judgments.
Here are some tips that can help repair or establish good credit:
Apply for a credit card.
Creditors want to see how you handle different debt obligations. Credit advisors recommend having no more than two to four credit cards, with on time payments (for at least the minimum amount) made each month. If you have difficulty getting a national credit card, try a local store. Local retailers are more likely to extend credit without an established credit history. Another option is to apply for a secured credit card with your local bank. These are credit cards with a pre-paid balance. Remember, you are using this card to build credit. Only use this option until you can qualify for a regular credit card.
Make all your payments on time.
This is the single most important factor to your credit report. A payment due date is the date your payment must be received, not the date it must be postmarked.
No late fees do not mean timely payments.
Even though you were not charged a late fee, it does not mean your creditor considers your payment on time. Some creditors do not charge these fees. However, a late payment is still a late payment. Read your disclosures thoroughly for this important detail.
If you missed any payments, catch up and stay current.
Your goal is to build a long history of on-time payments. How you paid your last payment is just as important as the one paid 6 months ago. The sooner you correct the problem, the better.
Keep your credit balances less than 50% of the limit.
The more available credit you have, the higher your credit score will be. Use only 50% of your credit limit on any credit card regardless of whether you pay off the balance each month. Asking to have your limit increased may help. However do not increase your balance owed.
Do not open new credit cards just to increase your available credit.
Assuming more debt responsibility could actually hurt your credit score. It is better to demonstrate a responsible credit paying behavior on a few accounts, than having multiple accounts with little or no history.
Open a checking account.
Open a checking account with your local bank in your own name. Make sure to keep it balanced and do not overdraw your account. Overdraft protection can help if this is a concern for you.
Paying off a collection does not remove it from your credit.
Working with the creditor to avoid a collection will always be worth it to you. Collections stay on your report impacting your score for 7 years, even after you pay them in full.
Start now.
If you have had credit problems in the past you can start to improve your score immediately. Start by making your next month’s payment on time. Keep focused on your goal and make careful credit choices. Be sure to pay all accounts on time, every time, when the payment is expected.
Review your credit annually.
Reviewing your credit annually is a good way to stay ahead of the game. Knowing what your creditors are reporting will help you avoid potential problems. Reviewing your credit report is also a good way to make sure you are not a victim of identity theft.
Establish a budget.
The purpose of a budget is to plan how you want to use your money each month. It is your money so control it or it will control you. Staying within a realistic budget will help you pay off debt quickly plus help save money for emergency funds. The amount you pay each month for debts such as credit cards and consumer loans should not be more than 20 - 30% of your gross monthly income.
Seek help when needed.
If you are not able to create a livable, workable budget to work out a realistic repayment plan with your creditors, or maintain mounting bills, consider contacting a credit counseling organization. These groups are different from Credit Repair Companies. Many credit counseling organizations are non-profit and will work with you to solve your financial problems. However, be aware that just because an organization says it is non-profit, does not guarantee that the services are free, affordable, or even legitimate. They may help you focus on timely payments, but do your homework first. You can do the same thing without any cost. Debt reported as paid by a credit counselor, can have a negative effect on your credit score.
