How to build Credit the right way?
lil_deville10 asked:
I’ll be 18 soon and hoping to apply for a credit card. What are some tips that you can give me so that i want make no mistakes, and that i can build credit the right way?
I’ll be 18 soon and hoping to apply for a credit card. What are some tips that you can give me so that i want make no mistakes, and that i can build credit the right way?
#1 rule is not go overboard applying for credit
why not start with a secured credit card and let that be a way to build your credit
To build good credit you must understand how credit scores are made up.
They are based on the following factors;
1. Pay history 35%
2. Time in bureau 15%
3. Types of credit 10%
4. New credit 10%
5. Debt to credit ratio 30%
Notice there is no mention of how many credit cards you have, debt to income or available credit you have, that’s because they have nothing to do with your score.
They may make a difference to a lender based on their guidlines but they have no affect on your actual score.
Now, for the very best score and profile you will need 3 credit card accounts (revolving) with balances below 30% of your credit limit and 2 cars, boats, homes, furniture or personal accounts (installment) all with good long pay history’s.
Start out with a couple of credit cards, use them for every day things, never exceed 30% of your credit limit in any given month and pay in full before the due date.
After about 12-months of doing this you can start on your installment credit.
Great credit takes years to establish (minimum 24-months) and only a couple of months to trash.
get a secured card. you give them $500… then you use the card up to that amount. if you can’t pay, they keep your money.
you can build credit this way. avoid the “normal” credit card and all the lies that go with it.
don’t borrow money, save like crazy, pay cash for things, or do without.
follow the baby steps at daveramsey (dot com)
had I done this at 18, I would have so much money in the bank…
Don’t spend beyond your ability to pay.
Pay ALL your bills on-time or ahead of time.
Get a loan for about $1,000. AND PAY THE LOAN on-time or ahead of time.
IF you get into trouble losing your job or getting laid-off, THE FIRST thing to do is to call the folks you owe the money to AND tell them what’s going on. DON’T “put your head in the sand” and hope the folks you owe money to will leave you alone and go away. It NEVER happens that way.
Thanks for asking your Q! I enjoyed answering it!
VTY,
Ron Berue
Yes, that is my real last name!
Advice:
1. Don’t spend beyond your ability to pay.
2. Borrow when you purchase big assets like a car or a home so that you can reasonably spread the cost out over the years that you use the asset.
3. Pay your bills on time.
4. Pay off the people who charge late fees or high interest rates well before their due date.
5. Don’t live your life managing your credit score, life your life having fun….
6. Pay off loans starting with the highest interest rates first.
7. If you can borrow at a low rate to invest at a high return, do it.
P.S. Since the mortgage interest on a home is tax deductible, definitely have a mortgage loan in your portfolio.
Having one or 2 credit cards is more than enough to start off on your journey to build a good credit history. Best options for you would be to apply for student cards (if student) or a secured card.
Building good credit history takes time and the fico scoring model gives most weight to good payment history. Spend only that much that you can pay off.
Any bad mark on your report (late payments, charged off accounts) can haunt you up to 7 years so very important to be responsible with credit.
Lots of people argue that there should be no credit cards for students for the simple reason that they are not responsible enough and can land in huge credit card debt. This fact can be true to a certain extent but credit cards help the students tremendously during their student life. This article takes a look at essential things to keep in mind so as a student doesn’t get bogged down by the credit card debt.
Build a habit of shopping around for things more so for student credit cards:
When you enter a college there are numerous credit card companies waiting to offer you a credit card. Look at each one of them, it might look as time consuming initially but it will save a for you over the college years. A student credit card with lowest APR and other fees will be suitable. Look for rewards that bring additional savings to you. Remember money saved is money earned.
Budget your expenses:
Making a budget is what everyone should learn in early life. The sooner this habit is imbibed, more rewarding the financial future becomes. Budget out your expenses, and eliminate the wastes. Being frugal is not good but being wise helps.
Stick to your budget:
There are temptations to spend more and there will always be. Getting lured into these temptations is a sure shot way to run into credit card debt. Remember every purchase that you make with a credit card is a loan and has to be repaid at the end of the month with interest. Read more from:
Building credit rules are simple just make sure you don’t spend more than what you could afford, and make payments on time if possible pay it off sooner then later to avoid paying interest, there are a few credit cards out there check out here you will be able to compare all major credit cards side by side on rates and rewards.