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Tips for Building Good Credit

If you’re an adult and you live in the US, you’ll know the importance of building good credit and how having a good or bad credit score can affect significant aspects of your life. What’s the big deal about credit scores anyway? Simply put, a credit score can reflect on your person’s character, dependability and integrity. It shows how conscientious you are in handling money and monetary obligations. And it affects the way people and businesses deal with you, if at all.
A high credit score opens up opportunities for jobs, home and auto mortgages, credit card applications and loans from banks and financial institutions. The interest rates on loans and credit card purchases are also determined by your credit score. The higher the score, the lower the interest. Building good credit is not as daunting as you may think. Basically, it requires discipline and a sense of responsibility, finance-wise. Here are some tips to building good credit and enjoying the many benefits that naturally follow if you have a clean and unblemished credit rating.
- First, know what makes up a credit score.
- Use credit cards wisely.
- Ask for an increase of your credit limits every six months if possible.
- Check your credit score.
Your credit score consists of the following: 35% payment history, 30% outstanding debts, 15% length of credit history, 10% new credit and 10% types of credit used. With this information, it is easy to understand why you should pay your bills on time, don’t miss out on paying loans including your credit cards, don’t overuse your available credit, limit new credits and owe the ”good” debts, i.e. housing mortgage, education loan and such.
Don’t think of credit cards as things that rob you of your money. They are in fact essential to building good credit. Use them wisely by paying the full amount every billing period if this is possible, not going over the credit limit and trying to stay within 25% of the credit line. Your payments for your credit cards are reported to the major credit bureaus and these are the agencies from where data to build your credit score come from.
An increase in your credit limit doesn’t mean you should use them to spend more. It simply increases your credit availability and lowers your debt to credit ratio, which in turn makes your financial status look better. A healthy financial condition is one way of building good credit.
A study done by the Consumer Federation of America showed that at least one error occurs in about 70% of all credit reports. An error against your credit will create a negative effect on your credit score. Since the three leading credit bureaus (Equifax, Experian and TransUnion) will release to the owner a free credit report if requested, avail of this benefit and check your credit score. Report any error for correction so that it won’t bring down your credit rating.
Now that you know building good credit is not rocket science after all, you need not be overwhelmed by the methods to do so. These are tips that are easy to understand and follow. Keep in mind that your good credit score is one of the keys to ensuring your financial success.