How to Build Good Credit

Last week we posted a blog about why first-time home buyers are struggling to purchase. One of the main reasons was having bad credit. So, we wanted to touch on this subject further and find some ways the experts say you can build good credit.

Believe it or not, bad credit doesn’t always mean having made poor financial decisions. For a lot of people, they have bad credit because they have NO credit. They have avoided debt like the plague, having been instructed by parents and elders to not get themselves into debt. Ironically, it turns out that some debt is good. Why? Because it helps you build credit, and without credit, you can’t make any large purchase from a car to a house, or even a little “purchase” such as getting a credit card. One might stop there and ask, “Wait, how can I build credit if I can’t even get a credit card?”

According to thebalance.com, “having good credit means you’ve demonstrated that you can handle credit responsibly – that you’ve managed your credit obligations and have paid on time.” So, like we said, the first step in doing this is to first get credit (assuming you don’t already have credit). Here’s some ways to do this:

  • Apply for a secured credit card. A secured credit card requires you to make a security deposit against the credit limit before you can be approved for the credit card. The security deposit is used as collateral for the amount you charge on the card, which makes credit card issuers more likely to approve your credit card because there is less credit risk.
  • Get a retail store credit card. These are easier to get because the store will most likely have less strict credit requirements. However, beware because retail credit cards typically have low credit limits and high interest rates, and they can only be used at a specific store. So, if you choose this route, get a card at a store you frequent often, like Target, and remember you’re getting the card to build GOOD credit, not go on a shopping spree and get into bad debt.
  • Get a co-signer for a credit card or loan. This is when you get someone with good credit to co-sign on a credit card or loan in order to help you qualify. A co-signer would share liability on the card with you, which means that if you failed to make payments, it wouldn’t just affect your credit, but the co-signers as well. As long as you are reliable, then you’ll soon build enough credit to qualify for a loan or credit card on your own.
  • Make Your Payments on Time. Late payments are a huge factor on your credit score, if not the biggest of all. In order to build a good credit score, you need to make all your debt payments on time. The more on-time payments you have, the more your credit score will improve.
  • Watch How Much You Borrow. Just because you have a higher credit limit, doesn’t mean you need to spend all the way up to it. A good rule of thumb is to never borrow more than you can actually afford to pay each month. Not only does this make you look financially responsible to creditors and lenders, it also helps you not get yourself into any real debt. This same principle could be said for loans. No matter what a lender might say you qualify for, be careful not to take out more than you can afford to repay, otherwise you’ll dig yourself into a hole of debt that is hard to climb back out of.

These are just some of the main ways to help you build good credit, but there are so much more! If you’re still wanting to learn more about how to build your credit, you can do some research online, or visit your bank today to get some tips and tricks from the horses mouth.

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