Building credit is critical in today’s society and the ways that you go about building credit are going to depend on what you do and how you do it. There are many different ways to build credit and knowing some of these steps will help you out. Having a low credit rating makes it much more difficult for potential lenders to secure you business loans and even credit cards. Poor credit history also makes it even harder to qualify for and get most forms of credit.
Your credit rating has such a big effect on your daily financial life. Credit cards are one of the most common and easiest ways that people are building good credit today. Many people prefer to obtain credit cards from their favorite retailer, since most major retailers are now issuing credit cards with a minimum deposit required. Obtaining credit through a card gives you the chance to build credit fast, since you are not required to put down a large deposit beforehand. This prevents you from building excessive debt and ruin your credit rating in the process. The same is true for those who obtain bank loans, since you don’t have to pay a deposit in order to be approved for a loan.
Another good way that people are building credit through these banks is by having savings accounts with their local financial institutions. Most banks require that you are at least 18 years old to start an account with them. After you establish a history of making regular deposits, you can then start working to rebuild your credit scores. Each time that you make a deposit, your credit scores improve. This is a good way to build credit because the money that you save will eventually go towards paying off debt and other financial obligations.
Another way to build credit quickly is to open a checking and a savings account with the same financial institution where you would open a regular account. Having both a checking and savings account allows you to have more than one line of credit available, allowing you to build credit over time. You are an authorized user of these accounts and can therefore use it to pay bills or buy other items that you know you’ll be able to pay off at the end of the month. Being an authorized user also shows the bank that you are responsible and trustworthy.
How to build credit by using your credit card responsibly is another great way to get started. Each time that you make a purchase, you must pay off the balance before the next billing cycle begins. Some companies charge an annual fee for this privilege, but there are many cards out there that offer this option without charging an annual fee. By responsibly paying off your balance every month, you will be building credit slowly but surely. If you avoid incurring any interest charges, this strategy will pay off extremely fast.
How to build credit by avoiding the annual fee is similar to opening a checking and a savings account. It also means not spending more than thirty percent of your take-home pay on bills and other expenses. Many credit cards offer a large limit on their credit card balances, but this should be used for purchases only and should never be used to finance anything for which you are not the primary card holder. This helps you avoid building up debt that you cannot pay off, which can hurt your credit scores.
Knowing how to build credit by avoiding the many common credit inquiries that occur each year is a good strategy. When you receive credit inquiries, the company collecting the information needs to report your inquiry to the three major credit reporting agencies (Equifax, TransUnion, and Experian). There is a slight decrease in your overall credit score when these credit inquiries are reported, but it’s small and worth the slight drop. Any good credit habits will continue to help you avoid the unnecessary inquiries.
Knowing how to build credit by becoming an authorized user on your partner’s account is a great credit practice. You don’t have to be the primary card holder to become an authorized user, but it does help your credit report and the relationship between the two cards. If you’re using your spouse’s account to make regular purchases (such as how to pay for gas at the supermarket) and you’re not making regular payments on the card, you are not establishing good credit habits. Be sure to make payment on time, every time. The best credit cards give you the freedom to manage your own financial future.