Building good credit can be easy if you understand the basics. By following these tips, you can maximize your credit score and achieve your financial dreams.
Budget
- You don’t know what you can really afford if you don’t take the time to create a budget. Write out how much you earn and then deduct your monthly bills/expenses. With the funds you have left, plan how much you want to save and how much you will spend on discretionary purchases, like entertainment, take-out or new clothes.
- Be smart about debt. Avoid living outside your means and avoid accumulating unnecessary debt. The less you owe, the better your credit score will be.
- Once you have a budget, stick to it.
Open Bank Accounts
- Having bank accounts shows financial stability. Open both a chequing and a savings account and make sure you have money in each of them.
- You are more likely to be approved for a credit card if you have bank accounts.
Apply for a Credit Card
- Choose a major card such as Visa, MasterCard, American Express or Discovery since these will have the highest impact on your credit score.
- If you don’t qualify, think about applying for a secured credit card.
Pay your bills on time, every time.
- Pay your bills in full as soon as you receive them to avoid being labeled as a “late payer”.
- Set up automatic payments if you tend to be forgetful or are planning to be away for an extended period of time. Depending on your credit card company or bank, monthly automatic withdrawals from your chequing account to your credit card can be arranged. You can usually choose how much you want to pay each month – the minimum amount, the full balance, or a set payment.
- If you are unable to pay your credit card bill every month, there may be better ways for you to establish credit than having a credit card.
Keep Your Credit Cards Under Control
- Use credit cards for small purchases you know you can easily pay off, such as gas or groceries (which you should have already budgeted for).
- Do not use them for purchases you know can’t pay off immediately, such as a trip or a new television, as this increases your debt and can lower your credit score.
- Make more than the minimum payment so you can work towards lowering your debt and avoid paying more interest charges. If you can’t afford the minimum payment, you are living outside your means and are not being financially responsible.
- Try to keep a balance of no more than 30% of the limit on your card. For example, if you have a limit of $1000, try not to go above $300. Doing so will keep your debt-to-credit ratio Frequently maxing out your cards gives creditors the impression you are irresponsible.
Get A Secured Credit Card
- Secured credit cards are a good idea if you are trying to rebuild poor credit. Basically, you put a deposit on a credit card (usually equal to the credit limit) to create a credit line for the card. For example, if you deposit $500, you can charge up to $500. Most major banks offer these “starter” cards and will often reward you for good payment by adding credit to your card without asking for additional deposits.
- It is a good idea to ensure your secured credit card is reported to major credit reporting companies so your credit benefits from good payment history on the card.
Keep Your Job
- Keeping a job for an extended period shows creditors you are stable and reliable. If your employment history has frequent holes or a long list of employers, creditors may see you as being risky, even if your credit score is reasonable. If your employment appears stable (i.e. you’ve kept the same job for a few years), they may still be willing to give you credit for large purchases (such as a mortgage) even if your credit is not ideal.
Avoid Moving
- Living at the same address for a prolonged period is just as important as keeping the same job for the same reasons. Creditors are more comfortable with those who appear to be stable. Applicants who move frequently are seen as risky and unreliable compared to those who don’t move often.
Review Your Credit Report Annually
- Request a free copy of your credit report so you know where your credit stands. You are entitled to one from each of the three national credit reporting companies once per year.
- Review your credit report carefully, looking for any errors or omissions. If you see any outdated or incorrect information, contact the credit company as soon as possible to have it resolved.
- Unusual activity on your credit report could indicate identity them. If you notice any, report it immediately.
Ask for Help
- If you slip up and are a little late with a payment, ask the creditor if they will consider removing it from your record. If you have a good payment history, they may approve your request.
- If you need guidance, talk to a reputable credit repair company. Credit experts will evaluate your current financial situation and help you take steps to improve it.
Most importantly, be patient. Good credit doesn’t happen overnight. It takes time to prove yourself to creditors and build a good credit report. By making smart financial decisions and avoiding debt, you can set yourself up for a successful financial future.
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