Building Good Credit
Category: Financial Planning
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It is important to start building good credit as early as 19-years-old. A credit score can influence loan interest rates, car insurance payment amount, and whether you will be hired for a new job or rent an apartment. Here are some
things you can do to help establish good credit and improve your credit score.
Start by opening a credit card through your bank or department store.
If you do not have any prior credit or your credit is poor, you are more likely to qualify for a credit card through your bank or with a department store.
Only open one new credit card each year.
Applying for too many credit cards in a year could have an adverse effect on your credit because it requires the financial institution to run a credit check. Your credit report should not show an excessive number of inquiries
at any one time.
Use your credit card to make a small purchase, then pay the minimum payment for several months.
This will require paying a small amount of interest, but that is a small price to pay for establishing a credit history.
Do not cancel old credit cards.
Establishing a long-term credit history will have a greater benefit. Cancelling old credit cards reduces your total credit limit available, which can have an adverse effect on your credit score. If it is necessary to cancel
a card, choose the newest card with the lowest credit limit.
Pay all your bills on time -- even utility bills.
Whenever possible, set up auto-payment for a date prior to the due date. Then monitor that the payment is actually being made.
Loans from a variety of sources will help your overall credit, if they are always paid on time.
This means having an auto loan, mortgage, revolving credit line, department store credit, etc.
Run your free credit report each year to check for errors.
You can only obtain a free credit report once each year, so stagger your report requests with the three bureaus. Request a report from a different agency every 4 months, instead of all of them at once.
Think twice before opening a joint credit card, co-signing a loan, or applying for a joint mortgage.
You never know what will happen in the future. If you are on a joint account, you may have to relinquish control of your credit if the relationship or financial ability of the other person suffers. In the case of divorce,
the court cannot force the other person to cancel a credit card or refinance a loan.