How to Build up or rebuild Your Credit
No matter how responsible you are with your money, you won't get a loan if there's no evidence of this. The evidence comes from having credit. You need to show lenders you can be trusted.
- Every time you apply for a credit card, this puts a dent in your credit score. In other words, it can negatively affect your scores especially if there are lots of credit checks in a short period of time. So apply with a lot of discretion; do you really need that extra charge card? Or is it worth it to continually cancel accounts and open new accounts while playing the interest/points game?
- Get a major credit card. A charge card is an opportunity to show that you will pay back, on time, money that you "borrowed." A debit card for this purpose is meaningless because it withdraws money from your account on the spot.
- An option is a type of credit card that requires a security deposit. Payment of your bills will not come from this security deposit. But it looks good to a potential lender, making you seem more trustworthy.
- Charge things like gas, food and other items, and/or put a monthly bill on the card for automatic payments such as your cable bill, then pay the card on time every single time-ideally the entire balance. This will create a record of your trustworthiness.
- Charge no more than 50 percent of the card's limit in any given month, even if you CAN pay the whole thing off every month. Exceeding 50 percent, some say, can adversely affect your credit score.
- A rule of thumb is to charge only what you'd be able to pay in cold cash every month. Just because your card has a $5,000 limit doesn't mean you should rack up $4,500 worth of purchases in one billing cycle.
- Use the card every month; don't let it go dormant, as this is not impressive to a lender. If you're having a tough time remembering to charge things like new shoes, food, drug store items, etc., then set it up for automatic draft of a monthly service.
- Even ONE late payment will screw things up. Remember, charge only what you'd be able to pay for in cash each month. If you can't, don't charge it.
- If YOU check your credit report any time; it won't dent your credit score. When lots of creditors check your credit, that can affect your scores.
Robert Siciliano is an identity theft expert to bestcompany.com discussing identity theft prevention.
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