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Credit troubles come in a variety of forms. Some consumers spend beyond their means, while others opt not to enter the credit system. You may be surprised to learn that having no credit could be just as damaging as having poor credit. While every consumer’s situation is different, there are rules of thumb worth following. Remember that if you expect to someday get a mortgage, borrow money for a car, or simply get a credit card, you will need to have an established credit history to get started. As far as banks are concerned, having no track record of credit can be just as risky as having a bad track record. Fortunately, there are strategies you can employ to ensure you establish an excellent credit history – whether you’re creating your credit history for the first time, or fixing years of damage.
Bad credit
If your credit rating is suffering from your mismanagement of money and credit, you will find it more difficult to get approved for anything related to credit: credit cards, auto loans and home mortgages. You also may find that other expenses such as your auto insurance premiums will go up if you have a poor credit score.
What you can do: If your credit score is below 620, you may be considered “subprime.” But you can find solutions for credit repair. First, make sure you pay all your bills on time. More than one-third of your credit score is directly related to your ability to pay bills on time each month. Next, check your credit report. There could be errors on file that need mending. If so, you may want to seek the help of a credit mending expert to return your credit to good standing. If you are dealing with debt challenges, you also might want to consider debt consolidation or debt management services. It will take time, but you can repair your credit. As a rule of thumb, defaulted or “bad” accounts will stay on your report for seven years.
No credit
Consumers who resisted the urge to take out debt might think that their behavior was wise – but that isn’t the case. No credit can be just as bad – sometimes worse – than bad credit. If you have no established credit history, banks will consider you a very high risk for loans or other credit-related products. Think about it: How can you prove that you’ll pay your money back and spend wisely if you have no history doing it?
What you can do: Apply for a single credit card. It’s likely that, if you’re approved, your card will have a high interest rate and a low available balance. That’s OK. You’re using this card to establish a pattern. Next, pay a standard daily/weekly expense on the card – whether it’s your gasoline or grocery expenses. Because you’re accustomed to these expenses, you can feel confident that you’ll manage your card well. Pay your bill in total every month, on time. As the months pass, you will have established a history of responsible behavior. Remember: the high interest rate on your card only matters if you carry a balance over from month to month. So pay your statement in its entirety, and you’ll be fine.
If you can’t get a credit card, you may want to go to your local bank and ask for a secured credit card. Or, you could consult your spouse or parents and ask them to co-sign for you. The most important thing is opening a single account and establishing purchasing and repayment histories. You can establish a credit score by having an account open for at least six months. Check your credit report after six months and see what’s there.
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