Getting credit when you don’t have any can be intimidating. But once you have the information to build good credit then you are half way there.
What is important is to build a good credit history because bad credit can keep you from buying a home, financing your education, and even from getting a job.
Everything you do that involves credit becomes part of your credit history. To have a good credit history, you have to use credit responsibly. Using credit responsibly means that you:
1. Charge only what you can afford to pay
Get into the habit of charging only what you can afford. You’ll find it easier to borrow money and get new credit when you show that you know how to only borrow what you can pay back. Another great benefit of charging only what you can afford is that this helps you avoid getting into debt trouble.
2. Start with only one line of credit
Many first-time consumers accumulate credit cards or other similar types of charge accounts within the first few years of using credit. Don’t do this. The more credit you have, the more you’ll end up using.
3. Pay on time
A large part of your worthiness is based on the timeliness of your payments, paying your balances on time improves your credit. Creditors want to see that you’re capable of paying bills as agreed.
4. Pay as agreed
If you have a credit card, pay at least the minimum balance. If you have a charge account that requires full payment at the end of the month, pay the full balance at the end of the month. If you have a loan, pay the agreed upon monthly payment. Wherever possible pay more than you agreed to because this saves you money.
5. Use only a small amount of the credit you have
Maxing out your credit lines is one of the most irresponsible ways of using credit. Chances are that you can’t afford to pay off a maxed out credit line. Staying below 50% of your credit limit is wise, below 30% is best.
If you follow these principles you will find it easier to get credit in the future faster and at more competitive rates.