When you’re just starting out in the world, because of its importance, establishing your credit should be one of your priorities. That’s why I wanted to provide you with a starting point for developing good credit.
There isn’t a whole lot you can do anymore if you don’t have credit established. Aside from the traditional credit needs of not being able to get a mortgage or finance a car, good credit is required to obtain several of life’s financial necessities.
Why Good Credit is a Must
In the past you would need to establish credit to buy a house or a car, these are two of the most significant investments most people will face in their lifetime. Today, the need for establishing credit has become even more critical. You must have proper credit to:
- Be hired for many jobs.
- Rent an apartment or a home.
- Open a cell phone plan.
- Get auto insurance.
One of the main reasons businesses do a credit check is to find out if you’re reliable, trustworthy and dependable.
When attempting to build your credit, your first step is to open a credit card. However, not all credit cards are created equal.
Some credit cards build your credit slower than others, so you’ll want to look into obtaining a credit card from a lender that is going to offer you the best options for building substantial credit as fast as possible. Building credit isn’t a fast procedure no matter what you do, but some cards offer you better opportunities than others.
How Do You Establish Credit When You Don’t Have Credit?
One of the most famous catch 22s is, how do you establish credit when you don’t have credit? You need credit to establish credit.
It makes no sense. However, if it weren’t possible, none of us would have credit, and I’d be writing about window dressings or something else.
It is, in fact, possible to build credit without having credit, and I’m going to explain the most effective way to do this as quickly as possible.
A Secured Credit Card
When trying to establish credit, your best bet may be a secured credit card. A secured credit card requires a deposit up front to which your line of credit will be based.
Similar to any other credit card, you can use a secured credit card to make purchases, as long as they’re within your credit limit. When your monthly payment comes due, you make your payment, just like with any other credit card, and if you don’t pay the balance off in full, you incur the agreed upon interest. If you fail to make a payment, the cash you deposited will be collateral.
When you close your account, you’ll receive your deposit back. Secured credit cards are meant to be used to build enough credit to obtain an unsecured card; they aren’t intended for long periods of time.
Student Credit Card
Another great option to establish credit is a student credit card. A student credit card gives young cardholders the ability to efficiently and quickly build credit. Many cards also offer helpful promotional offers and rewards.
One drawback is that these cards usually come with a lower credit limit and a higher interest compared to other cards. You will find that higher interest rates are the norm when first attempting to establish credit.
Store Credit Card
Store credit cards are one of the easiest ways to establish your credit. One reason these cards are relatively easy to obtain is that their requirements for acceptance are lower than other types of cards.
After getting a store card make sure you use it for items you need and set aside the cash so you can pay the balance off in full every month. This practice will quickly establish and maintain a higher credit rating.
Good Practices to Establish Credit and Improve Your Credit Score
Pay the Balance in Full Every Month
When you do receive your first credit card there is one essential practice for you to apply monthly, pay off your balance in full every month. Whenever feasible, this should be standard practice whenever you charge an item to your credit card.
The quickest and best way to establish and maintain a high credit score is to pay off the balance on your credit card as soon as possible. Apparently, this isn’t always easy to do, but it is a significant way to establish good credit.
However, when you’re establishing credit, you should use your credit card as a tool rather than a means of making a payment. You should only buy things you need, like fuel for your vehicle, and set the money aside so that you can pay the balance in full when the credit card statement comes every month.
Always Pay on Time Every Month
Along with paying your balance in full every month, you should never be late with a payment. Being late with a monthly fee has a significant impact on your credit score. Come up with an easy to remember, plan to make sure you’re always early with every single monthly payment.
Don’t Carry Unnecessary Credit Card Debt
This tip goes along with always paying your credit card balance in full every month. However, if something comes up, as it usually does, and you need to pay off your balance over time, make sure you keep these simple suggestions in mind:
- Avoid carrying credit card debt, like the plague, if at all possible.
- If you can’t avoid carrying your debt over, make sure you pay it off as soon as you possibly can.
- Try hard not to carry credit card debt that’s too high. Only use your card for items you absolutely, positively need.
Keep Your Utilization Rate Low
Your utilization rate is one of the things used to determine your credit score. It’s the amount of your card’s credit limit you spend each month. If you have a credit limit of $1,000 and you pay $100 each month, your utilization rate is 10%.
You should always try to maintain a utilization rate lower than 30%. Ideally, you should keep it as low as possible.
Always be Ready to Trade Up
Your options for better credit cards significantly improve as your credit score improves. As your credit score keeps ticking up higher, you’ll begin to receive opportunities to obtain better cards with better interest rates and better benefits.
Always be ready to make the switch to a credit card that will provide you with better, safer and cheaper options. However, as with anything else related to your financial health and well being, always do your research to ensure you receive a great deal.
There are several tips, as well as credit cards, that will provide you with the ability to establish and maintain the best credit score possible. These were just a few of the options available to you. When searching for better opportunities, do yourself a favor and always do thorough research.
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