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Once you know how a FICO score is calculated you can understand what it takes to build a good credit score. To refresh your memory, your credit score is a way for lenders to determine how risky it is to give you a loan. The score determines your ability to pay back the loan amount. When you are just starting out it can be difficult to establish credit, but once you get started it's important to understand how to keep a good credit score.
Just Starting Out
If you are just starting out with credit you may find it very difficult to get a credit card account or a loan of any kind, especially in these economic conditions. Well here is a way that you can do it.
Before trying to get any credit make sure you have enough money to cover all of your expenses. Do not sign up for credit so you can pay bills that you currently are unable to pay on the income that you have. Credit should be used if you have extra money each month saved up.
Once you know you can afford some debt there is an easy way to get some credit fast. Get a secured credit card. A secured credit card is a credit card that is backed by money that you put into your account. So if you want a $300 credit card limit, you could walk into your bank and fill out the secured credit card application and deposit $300 of your own money into the account. Then you are allowed to spend up to $300 on that card, you make monthly payments just like you would on a credit card. After a certain amount of time, usually 6-12 months the bank will almost always offer you an unsecured credit card as long as you've been making payments on time.
Already have credit?
Once you have credit it's important to make sure your credit score remains in good standing. Here are some steps that can help you to keep your credit high.
Copy of your credit report: Look at your credit report quarterly and make sure there are no errors on there if there are then dispute them immediately. As inaccuracies are on about 60% of all credit reports and they can have a negative effect on your credit score.
Budget: Understand where your money is coming from and where it is going. This also allows you to make sure you can afford the debt that you have.
Make payments on time: Continue to make payments on time and don't be late. Even one late payment can knock down your credit score by as much as 50 points!
Credit Balances: It's important to keep your credit balances low. You should never max out a credit card. This will increase your debt to credit ratio which is a major factor in your credit score.
Time of credit: The longer you've had credit the more it affects your credit score. This is why it's important to keep your oldest accounts open and active.
Limit your accounts: It's not necessary to apply for those credit cards that give you 10% off if you sign up for the credit card at the time of purchase. Too many of these can have a negative impact on your score, just stick to what you already have. |
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