The 5 Best Ways to Build Good Credit
There are lots of reasons to build good credit. Once you realize how important this is to anyone looking to borrow money right away or in the future, you will want to find the best way to build credit and follow it as soon as possible.
In fact, there are plenty of ways to build credit, and in this guide, we’re going to break down the smartest and most effective for you. When we talk about the best way to build credit, what we are really referring to is the best way to improve your credit score.
In the long run, this will help you get approved for everything from a personal loan to a credit card, and may even result in reduced interest rates for you to pay. The converse of this, naturally, is that with a poor credit score, these things will be more difficult to arrange - and you’ll probably end up paying more.
Read these five simple steps and you’ll know how to start building credit right away.
When You’re Borrowing, Stay Within Your Means
When we get the opportunity to borrow money. there is often the inclination to go for the maximum amount that’s available. This can, for instance, apply to when we’re trying to get a personal loan or when we've been given a credit card with a specific spending limit.
Simply put, just because we’ve been given to opportunity to borrow or spend that amount, it doesn’t make it a good idea to max out immediately - especially when we’re looking to follow the best way to build credit.
Essentially, building good credit is a question of showing your current and potential future lenders that you are a responsible and reliable person. You can not do this by going on credit card spending sprees or taking out loans that you then find hard to repay while sticking to your monthly budget. By showing that you have the foresight and sense to only borrow what you can easily afford to pay back, you will prove with confidence that you are a responsible and credit-worthy borrower.
Don’t Use All of the Credit You Have Been Given
You may know how to get credit, but knowing how to use it well is another matter altogether. The first thing to appreciate is that a credit card with, say, a $2500 limit doesn’t mean that you have that amount of money to go and spend at the store. It just means that the credit card issuer is prepared to lend you up to that amount over a specific period of time.
This is also dependent on you showing that you are willing and able to make regular repayments to keep the debt on your card either at an acceptable level or to clear it completely on a regular basis. So, when you’re looking for the best way to build credit, it’s important to remember to use the credit that you’ve been given in moderation.
Fail to do this and have a permanently high balance on your credit card or cards, and you’ll find that your credit score falls. If the amount you’re having to pay to service the debt also means that you need to go short in other areas, there can be other consequences. So, as a general rule, try to keep your balance under 30% of your credit limit on each of your credit cards.
One Card’s Fine to Begin With
Once you’ve applied for a credit card and been accepted, it can be tempting to take out a few more. However, once you know how to build good credit, you'll realize that this is something that you should avoid. This is because having numerous credit cards can make it all too easy to rack up considerable debt. In fact, because it's spread over a number of cards, it can be easy to lose track of the total amount that you owe to all lenders.
On the other hand, lenders will be able to find out exactly how much you owe when you apply for credit, and this could negatively affect your ability to borrow from them. In addition, the more cards you hold, the greater the negative effect on your credit score. So, when it comes to the number of cards you hold, the best way to build credit is to stick to just one for as long as you can.
Clear Your Balance Whenever You Can
Sometimes the most obvious solutions are the best, so it won’t come as a surprise to discover that a way to build good credit is to pay off your credit card balance, or balances, in full. This will show lenders that you’re treating each card responsibly by only using it for what you can afford to repay.
This might sound a little strange, as many people take out credit cards to pay for things that they can’t afford in one go, but it’s good advice all the same. So it could be a good idea, in terms of the best way to build credit, to have a card that you use for your normal monthly expenses such as groceries and gasoline. Then, when you get your monthly paycheck, you pay off the previous month’s expenses in full.
Never Miss a Payment Date
Our final piece of advice about how to build your credit is one of the most important ones. One of the most unfavorable elements that can appear on any credit report is a series of missed payments. This sets alarm bells ringing for most lenders, especially if it means a debt has been recovered by a third party. While the majority of missed payments don’t get this far, it can be easy to fall behind and the situation can quickly deteriorate.
So, make sure that the payment dates for your cards and loans are firmly lodged in your memory. Better still, arrange for them to be made automatically from your bank on the exact dates that they become due.
Now that you know the best ways to build good credit, you can work towards this before you pick one of the best installment loans on the market using our handy website.