Having good credit is important because it improves your chances at getting approved for credit cards, loans, and other services. Your credit also has an impact on the cost of these services. Building credit is essential if you want to pay the lowest interest rate on credit cards and loans.
You can begin to build good credit by opening a credit-based account. This includes either a credit card or loan. If you’ve never had credit before, you may have an easier time getting a credit card than a loan. You’ll usually have better chances getting approved for credit cards and loans from a bank that you already have a checking or savings account with. This established relationship can help your application process.
Once you get a credit card, it’s important that you use it the right way if you want to build credit. Start by charging only a small amount of your credit limit. It’s best to keep your balance below 30% of your credit limit. So, if your credit card has a $500 credit limit, keep your charges within $150. Using only a small amount of your credit limit demonstrates that you aren’t taking on more credit than you can handle.
Always make your credit card or loan payment on time every month. You should send your monthly payment a few days before the due date to make sure your credit card issuer or lender receives the payment on the due date. Timely payments have the most significant impact on your credit score. Late payments will start to hurt your credit once your payment is thirty days late. When you’re trying to build credit, a late payment can set you back extremely far.
Keep your credit card and loan applications to a minimum. Though you may be trying to open a new account to start to build credit, don’t apply for too many new credit cards or loans too soon. Instead, make one or two applications. If your application is denied wait a few months and then try again. Each time you put in a new credit or loan application, your credit hurt a little bit.
To build credit, you must use credit responsibly. Don’t take on too much credit at one time and always make your credit card payment on time.