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Seven Essentials of Building Good Credit

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Establishing good credit is a financial necessity. A good credit rating will allow you to make large purchases, acquire a home loan, rent an apartment and buy a car. A high credit score can also save you thousands of dollars in interest. But where does good credit begin and how do you avoid credit card debt? Here are 7 essential ways to build good credit:

Establish credit by obtaining a loan or credit card.

Limit purchases to what can be paid off each month.

Make payments on time every month.

Avoid too many lines of credit.

Do not max out your card.

Check the three major credit bureaus to see if your credit report is correct.

Keep track of all financial documents to prevent identity theft.

Establishing Credit

The first place to start building good credit is to attain a loan or a credit card. It seems rudimentary, but some people think by avoiding credit cards they are somehow being financially sound. True, you won’t accumulate debt if you don’t have any form of credit. However, unless you can pay cash for a home, car or other large purchase, you’re going to need good credit. Even purchases you can afford with cash can be restricted or denied if you don’t have credit, like renting an apartment or certain types of insurance.

Within Your Limits

Now that you have a credit card, do not assume it is simply free money you can use without consequence. You should create a monthly budget and stay within those guidelines for purchases. Opening a special savings account to pay off your credit card bill can prevent carrying a balance over to the next month.

Payment History

If you must carry a balance on your credit card, do it wisely. Even a relatively low interest rate for a credit card can still cost you thousands if you accrue a large balance. If you only made the minimum payment on a $5,000 debt at 18%, you would pay around $7,000 in interest alone. However, making payments on time will reflect well on your credit report.

Lines of Credit

Accumulating too many credit cards will make using them extremely tempting. When you amass debt and your income stays the same, your credit rating suffers. Also, lenders assess risk by checking for recently acquired lines of credit. If you have several credit cards, the lender may consider that risky behavior and deny you for the loan.

Maxing out your Credit Card

Another standard lenders use to determine your credit score is your available credit. Maxing out your credit cards shows you not only have a significant amount of credit card debt but are in danger of default. Subsequently, you are a higher-risk borrower and appear less likely to repay your debt – possibly leading resulting in bankruptcy.

Credit Bureaus

Think of your credit report as a car. Your car needs routine check-ups to make sure it’s running properly or it could break down unexpectedly. The same applies to your credit. Allowing even a seemingly trivial mistake or idiosyncrasy to go unexamined on your credit history could cause major problems down the road. The three major credit bureaus you should routinely check are Experian, Equifax, and TransUnion. Checking them frequently can help prevent identity theft.

Keep Yourself Safe

It is estimated that over the last five years identity theft has cost nearly 27 million consumers over $5 billion. Thus, it is imperative you protect your confidential information from falling into the wrong hands. Trying to prove your innocence and expunge the detrimental effects of identity theft can cost a great deal of time and money. Unfortunately in most cases, you are guilty until proven innocent when it comes to credit fraud.

You can control your financial future by building and maintaining good credit. The benefits of a good credit score can mean you save thousands of dollars on important purchases. However, if you suffer from exceedingly high debt, you might consider credit debt consolidation or debt settlement. Waiting even another month can cause your plummeting finances to crash. Due diligence and discipline are required to find and implement a successful financial plan, but a debt free life is well worth the effort.

Article Source: http://www.articles.ask-me-about.com

Author Bio: Scott Sumerford has several years of experience working in the financial industry and has written a myriad of articles on various financial matters. Read more about how Credit Solutions offers a viable alternative to debt consolidation.

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