Bad credit can prevent you from buying a home, financing your education and even getting a job. This is why it is so important to build good credit.
Starting with your first credit card, everything you do that includes credit becomes part of your credit history. To have a good credit history, you must use credit responsibly. But what counts as responsible use of credit?
Just borrow what you can afford
When you get into the habit of charging only what you can afford, it lets future lenders and creditors know that you are a responsible lender. It will be easier for you to borrow money and get new loans when you show that you know how to borrow what you can repay. Not only that, just charging what you can afford helps you avoid too much debt.
The same thing applies to loans. Just take as much credit as you can afford, no matter what the lender tells you to qualify. Before you buy a loan, review your budget and see how much monthly payment you can afford. Make sure your payment does not exceed the amount you received.
Use only the small amount of credit you have available
Maximum credit card issuance – or even closeness – is irresponsible, especially if you do not plan to pay the full amount within a month. Borrowers know that borrowers who maximize their cards often have difficulty repaying what they have slow. Fighting below 50 percent of your credit limit is wise, under 30 percent it is best to build good credit.
Make all your payments on time
Not all your monthly payments are listed in your credit report, so they don’t affect your credit as long as you pay on time. However, any invoice could potentially end up on your credit report if you become irregular and the invoice is sent to your billing agency. Keep negative credit reporting orders to make a good credit score. It is difficult to overcome serious delinquency such as debt collection.
If you carry a balance, do it the right way
Having a credit card balance is not necessarily a bad thing as long as you do it the right way. Pay more than the minimum each month to pay off your money as quickly as possible. Avoid making credit card payments and keep your balance at a reasonable level (below 30 percent of the credit limit). If you follow these principles, carrying a balance will not hurt your credit.
Let go of the life of your accounts
The longer you have a loan, the better your credit score is. Leave your oldest accounts open as they help you increase your credit period and get good credit. Closing an account will not immediately remove it from your credit report. But, after a few years, credit bureaus will eventually drop older, closed accounts from your credit report.