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In case you haven’t heard, your credit score and credit history both play important roles in your financial life. Your credit is one of the deciding factor in getting approved for loans or credit cards, not to mention their interest rate if do get approved. That’s why it’s a good idea to start building your credit as early as possible. With no credit history, you may have a difficult time getting approved for certain credit cards or a large loan, but there are always lenders out there for those with bad or no credit. Here’s the basics on how you can start building your credit and then maintain it for life:
How to Start Building Credit
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One of the best ways to start building your credit is also probably the easiest – open a bank account. By responsibly using a savings or checking account, you develop a positive relationship with your bank. Eventually, you can talk to a bank representative about opening a credit card with them.
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Are you attending college or getting ready to enroll? Many lenders are more than willing to approve college students for a credit card and they can make a good building block to developing your credit score. Keep in mind, that student credit cards typically carry some of the highest interest rates of all cards and many students aren’t ready for the financial responsibility.
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Many department stores, grocery stores, or even gas companies offer credit cards with very undemanding approval standards, which make them a viable option for your first card. Some may even offer awards or benefits for using them. Like student credit cards, these tend to have fairly high interest rates so borrow responsibly.
How to Maintain Credit
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Making late payments is probably the most common way credit scores get damaged. In order to maintain and build your credit, pay your credit card bills the day you receive them in the mail. Better yet, sign up for your credit card’s online service and schedule your payments to deduct from your bank account every month.
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One of the most important factors in determining your credit score is your debt to available credit ratio. The more debt you have and the less credit you have available, the lower your credit score will be. That’s why you should try to maintain low balances on your credit cards and pay them off in full every month. At the very least, make a little bit more than your minimum payment each month.
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Don’t fall into the credit card trap. No one needs a dozen credit cards, especially those who are just trying to build their credit from scratch. Start off with one or two for the first couple years, then you can expand if you must. Remember that applying for a new line of credit affects your credit score and multiple inquiries in a short period of time can quickly lower it.
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