Credit can be a confusing and intimidating topic to approach when you are first starting out. Choosing between credit cards is a bit overwhelming if you aren’t sure what you are looking for. If are just starting out and you need help, here are some tips for you to work towards building good credit.
The first step towards building good credit is for you to find a credit card. This does not mean for you to go out and start applying for credit cards like you would apply for jobs. You need to do ample research into different credit cards and read the terms and conditions in depth.
A good credit card to try for as a beginner is Discover. They typically have high approval rates and offer student credit card options if you believe that’s what’s best for you at the time. Just make sure to read and understand what you are agreeing to when you apply for a credit card.
Also, look for credit cards that come with perks like cashback bonuses and ones with 0% interest rates for at least the first year of having the card. Might as well get some extra stuff while you are spending your money, right?
It is extremely important to maintain low balances on your credit cards. Typically, the safe number is having no more than 4% of your credit card limit charged onto the card at one time. Higher balances tend to drop your credit score quickly and easily.
In order to keep a low balance, use your credit cards for small purchases like your coffee run or when you stop at a store for that ice cream you just could not stop thinking about. If you only use the card for smaller amounts, you won’t run into using more than 4% of your balance and making your score suffer as a result. Also, this will help prevent you from overcharging and getting yourself into the slippery slope of credit card debt.
The most crucial and critical thing you must do to ensure a good credit score is to pay your bill on time; and in full if you are able to. If you can’t pay the entire bill, make sure to cover the minimum balance by the deadline your credit card company gives you. Paying your entire bill every month will be very beneficial to your credit score and will prove to lenders that you are a reliable borrower.
Always remember to spend within your means, no matter how tempting it truly is to buy things. More often than not, we spend our money compulsively on things that we want in the moment because they are there. Make sure to try not to spend more than you make and that will help you will stay out of bad financial trouble.
Not only do you have to pay your credit card bills on time, but you also have to pay all of your other debts and bills on time as well. Any debt linked to your name will have an impact on your credit score as well. Student loans, car insurance, rent, you name it. If you pay those bills late, they too will have a negative impact on your score.
Make a budget of all of your expenses as well as your income. If you physically track what you make and what you spend, you will become a much more active and aware consumer. Having it all mapped out in front of you truly helps keep you accountable of your expenses. It is a great way to make sure you are saving for when you’re older, when times are tough, or when emergencies happen.
Utilize the free credit monitoring services available to monitor your credit. The best ones for Freecredit and Credit Karma. Not only you can monitor the activity but also setup alerts to notify you with emails if there is a change on your credit file. These services are a great way to ensure that your identity is secure. In the unfortunate event that your identity is stolen the effects of the unauthorized activity on your credit score could be quite devastating and the amount of time it would take you to clear your credit file could be lengthy and frustrating.
Both of these services are free and they don’t result in a hard credit check on your credit file when you access them. For an additional fee they will give you access to additional services like locking your credit file so that no new credit cards or loans can be issued in your name. Sometimes it is well worth to pay the additional fees to monitor your credit activity or secure your account if you consider how important a good credit score is.
Every time you apply for a credit card, car loan, student loan, mortgage, prepaid mobile service, cable or internet service the company does a hard credit check on you. When there is a credit check on your file this inquiry will stay on your file for some time and it will reduce your credit score. The logic behind the drop is you could potentially take on additional liability that will effect your ability to pay your debts. So don’t do a hard credit check unless you have to and if you see an unauthorized credit check on your file you can contact the credit reporting agency and have the credit inquiry be removed.
Length of credit or loan is also a great way to improve your credit score. The longer you have a credit card the higher your credit score. If you switch credit cards often your will have higher credit checks on your credit file and shorter duration on your account both of which will effect your credit score.
A family member or significant other may be willing to add you as an authorized user on his or her card. Doing so adds that card’s payment history to your credit files, so you’ll want a primary user who has a long history of paying on time.
You don’t have to use — or even possess — the credit card at all in order to benefit from being an authorized user.
Ask the primary cardholder to find out whether the card issuer reports authorized user activity to the credit bureaus. That activity generally is reported, but you’ll want to make sure — otherwise, your credit-building efforts may be wasted.
You should come to an agreement on whether and how you’ll use the card before you’re added as an authorized user, and be prepared to pay your share if that’s the deal you strike.
When you start to build credit another good option can be to get a co-signer on the loan or the credit card. This maybe hard to do since it places all the liability that co-signed that loan for you as the responsibility for the loan if you don’t pay will be on the co-signer.
If you can get someone to become a co-signer you will get the benefit of the co-signer’s good credit score and build your credit with it.
In conclusion, there are quite a few things you can start doing to start building your credit and maintain it. Having a good credit score not only will save you money by lowering your interest rates that you pay on car loans, mortgages and even lower insurance rates. But it will also effect whether or not you land that dream job.
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