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Money 101: How to Build Credit

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Your credit score is one of the most important factors whenever you are searching for a car, house, or even just an electricity company. Almost every business that gives you a monthly bill will run your credit. If you are a young adult, or someone who hasn’t used credit in a long period of time, it might be confusing on how to build enough good credit to be able to get a loan.

Credit Card

If you are under 22 years old or in college you more than likely qualify for most companies’ student card. These are credit cards that typically have a higher interest rate, but are easier to obtain because the company doesn’t expect you to have much credit history already. If you are returning to the world of credit it might be time to search out higher interest rate cards that are more lenient on whom it accepts. Understand that the card you get when you are trying to first build credit shouldn’t be the one you keep when you have a good score; it’s just the first stepping stone.

A great tip for building credit with a card faster is to get a small balance on the card, fifty to one hundred dollars, then instead of paying it all off, pay twenty dollars over the minimum payment. You will have to pay a little more because of the interest rate, but this shows you can handle having a credit card. Use this strategy for six months to a year, after that you can pay it all off each month if you would rather.

Monthly Bills

Setting up accounts for electricity, rent, the internet, insurance and other monthly bills will help show that you are trustworthy enough to continually pay agreed upon rates. These monthly bills won’t be hard to get without much credit and they won’t improve your score by leaps and bounds, but it will slowly increase the score you have. The more different types of credit accounts that you have, the better your score will show.

Lowering Debt

If you have large student loans or are upside down in a mortgage then your debt to income ratio will be very low. The debt to income ratio is the total amount you owe divided by how much you make in a year. The higher this number is the worse your score will be. The priority for people looking to establish good credit is to eliminate as much debt as you can in order to be eligible for better loan and credit card rates.

Being on Time with Payments

It is incredibly important to be on time with your monthly payments for everything every single month. While each on time payment won’t be a huge boost in your credit score, one late payment could drastically lower it. That is why showing that you can pay on time every month is immensely important for your credit score.

Check Your Credit Report

This is an important report for everyone to look at. You can get one credit report per year without it affecting your credit. This report could show unpaid items, collections, or other things lowering your credit score. Be very careful about where you get your report from. Many websites and commercials will advertise that you can get your credit report from them, but instead ask someone you trust like a parent, friend, or financial professional.

Get Rid of Fraud on Your Report

Once you check your report you may find items on there that were not from you. If you have something fraudulent on your account you can contact the company that the fraud occurred from. If that doesn’t work you can typically find a number to call from the site where you got your report that can help walk you through getting rid of these negative items. You can also get in contact with an accountant or possibly your lawyer who can direct you where to go from there.

Getting a Secured Loan

A secured loan is a loan backed by some form of collateral. Typical examples of collateral are a house or car. These loans are seen as safer by banks and as such have a higher chance of being approved. This step isn’t for people just starting on credit, but for people who have spent a year or two building credit and now need installment information on their credit report to further improve the score. Loans should never be taken lightly and know that each time someone runs a check on your credit it will lower your score. Still finding the best rate from different banks is always worth checking. A lower rate of even half a percent could save you hundreds or thousands of dollars over the term of the loan.



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