What makes good credit, "Good Credit"? This is a question that seems like it ought to have an obvious answer. However, the fact that less than 15% of the population truly understands our current credit system, makes this something far from obvious.
Here are 10 common issues with understanding your credit:
#1: Paying your bills on time for at least the minimum payment. That’s the single most important action you can take towards good credit.
#2: The kinds of credit you have can also impact your score. Too many easy credit financing accounts can actually hurt your score. Don’t get me wrong, they are great stepping stones to better, more beneficial credit.
#3: Do not to go out on a furniture, jewelry, electronics, car-accessory financing sprees. Just one or two of these in good standing can make it possible to the next stage for good credit. And this is where we get ‘too many inquiries’. The creditors view too many inquiries as a bad thing, and can really impact struggling credit scores.
#4: With the exceptions of Homes and Autos; and especially the easy-credit-items, if you cannot afford it, don’t finance it. Save your money and buy it with cash later. This will teach discipline, it’s good for all of us! And keeps us from nickle and diming ourselves into the poor-house! ~for the record, this is the hardest of all, on the whole list, at least for me! ~
#5: Once you can afford to buy it with cash, and you are intending on using this one account as a stepping stone to better credit later. Go ahead and finance it, then pay it off over the next few months. Won’t be super difficult, because you are learning to save. Once the account is paid ...Do not close it.
#6: Closing old accounts. Don’t close old accounts just because you got a better account. Use them for periodic purchases and pay the full balance off, before any interest accrues (usually before the due date on the first statement showing your balance). It doesn’t hurt to have several accounts, just to have several revolving accounts with balances.
#7: Charging up the cards is not, I repeat NOT, the same as building credit. It’s just making debt. Be wise with your spending. Keep yourself from being overwhelmed by the nickle and dime phenomenon.
#8: Fraud Alerts. You’ve heard me say it before, but I say it again. Fraud alerts have their place. If you really have had your identity stolen, your wallet or purse. Then it can be a good thing, only for a temporary basis. Identity Theft is not the same as letting your girlfriend or boyfriend use your card, or drive the car you financed, believing or not that they will pay for it. If they don’t, you will have to anyway. Fraud Alerts should be used sparingly and only for as short a time as crisis requires. Creditors and Banks see fraud alert abuse, as you not taking responsibility for yourself. They can actually hurt your chances of getting granted some the better credit items.
#9: Stay away from Payday/Car-Title Loans. Pawnshops too. Live lean, and tough it out. These things are a trap, and once you are buried in the 200% interest, it can take an act of Congress to dig you out. Chances are the circumstances which may tempt you to use these guys, will have resolved themselves far faster than the payments you’ll be locked into by these Payday Loans.
#10: Read the small print! BEFORE YOU SIGN! On all the loan agreements you sign. Read them. If they don’t make sense, don’t accept the credit. Period. Save your money and buy it later. NEVER apply for credit while you are desperate and in the moment. Take a deep breath. It helps.
The path to good credit goes a little like this: One or two easy-credit items, paid off, then move onto Department store cards. Being in good standing with your department store items will give your own bank enough reassurance to give you a MasterCard or Visa. Those in turn make an American Express possible. Most anywhere along in this good credit journey, you can get approved on a car loan, which helps immensely in improving your scores. Make all of your payments on time, if not early, and for at least the minimum due, if not more. Once you have mastered all these kinds of credit, and learned lots of discipline, you may be ready for the heftiest of all debts. Your own home. Be ready, so you can avoid the mess so many people are in right now.
Each new line of credit you are granted is an opportunity to prove yourself for the next new creditor on the horizon. Make the most of it. Make all your payments on time, and pay a little more than what is minimally due. This process can take a couple years, but its so worth the effort, and finanacially beneficial to you too.
If you are currently in a position of damaged credit, with a little time (less than 20 minutes per week), and the right proven credit repair system, you can remove the damaging tradelines and repair your credit quickly.