Poor credit may keep you from getting a home, funding your schooling, and in some cases from getting a job. This is why it's extremely important to establish good credit history.
Beginning with your first visa or master card, whatever you do that is connected to credit becomes a part of your credit history. To have a good credit ranking, you have to use credit carefully. But what counts as using credit carefully?
1. Don't charge more than you can afford to pay back
Once you get into the habit of charging only what you are able afford, it lets potential lenders and debt collectors recognize that you happen to be a responsible borrower. Its better to borrow money and get new credit once you demonstrate that you understand how to only take what you can pay back. Not just that, only charging what you can manage makes it possible to reduce extreme debt.
2. Use only a small amount of the credit you have
Maxing out your credit cards - or even coming close - is one of the worst things you can do when it comes to trying to build up good credit history. Because the chances are that you can’t afford to pay off a maxed out credit card balance with all the additional fees that lenders add to your monthly statement. Lenders know from years of experience that people who have high or maxed out credit cards have trouble paying the balances back on time and in full. Staying below 50% of your credit limit is wise, below 30% is best.
3. Start with only one credit card
Many first-time credit card users accumulate a collection of credit cards within their first few years of using credit. Don't do this. Because naturally the more credit you have, the more you'll end up using. Before you apply for new credit cards, learn how to handle what you have first.
Also, every time that you apply for credit, creditors check your credit report and if you have too many 'credit checks' within a short period of time lender's tend to see you as a high risk user. This is why it's important to stick with just one card for the first few years while you're trying to build up your credit.
4. Pay your credit card off every month
If you're only charging what you can afford to pay, this won't be a problem. And paying your balances off each and every month in full shows your lenders and creditors that you're capable of paying your bills and handling your debts, which is something they want to see from you as a user. Most people don't know this, but the timeliness of your payments makes up 30% of your credit score, so paying your balances on time and in full helps to improve your credit.
5. Carry a balance the right way
Carrying a credit card balance isn't bad as long as you do it the right way. If you can, make more than the minimum monthly payment to reduce your balance as quickly as possible over the shortest period of time. Avoid making late credit card payments and continue to keep your balance at a reasonable level. If you follow these principles, carrying a balance won't hurt your credit.
If you follow the 5 tips above, you'll have no problem establishing good credit with your lenders and you can almost guarantee that you'll never be turned down for a credit application because lenders will see you as a responsible credit user.
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