5 Ways To Build a Good Credit History
Bad credit can keep you from buying your dream home, car or financing your children’s education. In today’s credit crunch situation, only those with good credit score will be entitled to get credit. Therefore, it is important for you to have a good credit history and it takes time to build. Starting with your first credit card, the credit you use today will become your credit history for tomorrow. You have to use your credit responsibly so that you can build a good history which you may use it for future credit application or even get a job. Here are 5 ways to use your credit responsibly:
1. Carry a balance the right way
If you are unable to avoid carrying a balance in your credit card, then you need to manage it in the right way. Try to make more than the minimum payment each month so you can pay off the balance as quickly as possible. Avoid late payment and keep the balance at a reasonable level so that it won’t hurt your credit history.
2. Use only credit that you can afford to pay
Purchase with credit card payment is for your convenient purpose, you should not use to pay the purchases that are beyond your financial affordability. Every time you have charged on credit, you should keep a habit to pay in full amount when you receive your monthly credit card statement. Buy what you are afforded and clear the credit cards every month will show to the creditors or future lenders that you are a responsible borrower. You will find it easier to get a new loan or credit if you have good credit history; moreover, you can enjoy lower interest rate if you have good credit score.
3. Pay your credit cards on time
Late payment on your credit card balance will leave a negative remark in your credit history and it will lower your credit score. Don’t let this happen on your credit history; pay your credit card balances on time. If you have too many credit card payments to make with, you might want to consolidate all these balances into one payment, so that you will manage the payment more easily and avoid any potential late payment.
4. Don’t own too many credit cards
Imagine if you have 10 credit cards and each card has $10,000 credit limit, then you will have $100,000 credit to spend with. The more credit you have, the more you may end up using, which will cause more debt on you. Any default payment or late payment may impact your credit history. Hence, it is advisable to limit your credit card to a few, if possible to one credit card in wallet and one at your drawer for backup purpose.
5. Keep your credit usage low
Normally the credit card companies will approve your credit card limit 3 to 4 times of your monthly income. If you max out your credit cards or spend close to the limit, there are chances you can’t afford to pay off the credit card balance and the balance will turn into debt. Any delay in payment or balances exceed the maximum limit due to the snowballing of interest will have negative impact on your credit history. Moreover, lenders know that borrowers who keep max out their credit cards often have financial difficulties to repay their debt. Hence, you should always keep your credit usage low such as 30% of the credit limit so that the spending will be within your income affordability.
Summary
The use of credit today contributes to your future credit history. So, use your credit wisely and responsibly so that you can build a good credit history which is important for your future credit application.
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