Are you loosing sleep over bad credit, unpaid credit bills or damaged credit? Establishing good credit is not as hard as most people think. Most of the time the solution is to follow five very basic rules or tips to follow:
Start small by applying for gas credit cards or department store credit cards which are easier to qualify for
Pay on time, Every time,
Stay within sensible credit limits,
Pay at least the minimum payment, and
Make sure that you are covered in all your purchases
Sound pretty easy, right? Some people may actually shrug their shoulders and say that this will not fix their financial situation. Understanding your credit history, credit line and the effects of your FICO scores will change your outlook on establishing good credit. With the right information, you can do it.
Understanding FICO
FICO is an acronym for Fair Isaac Corporation. This is a publicly traded company that has studied and created the most well known and widely used credit scoring model in the United States. Your FICO score can be your best friend, or your worst enemy, when it comes to establishing good credit. Your FICO score does matter. According to a statistical survey conducted in the United States, a score of 680 or higher dictates that the individual has established good credit.
The FICO score is used by banks and companies to asses an individual’s credit worthiness. For a broad overview of how the credit is scored, here is the approximate percentage for scoring. 35% is allotted for punctuality of payments with regard to past bills, 30%, for the amount of debt the person is in, 15% for the credit history of the person, 10% is for the type of credit used and 10% for the most recent amount of credit accumulated by the individual. Having a great FICO score will give you a better stand on your finances.
Two types of credit.
Your Credit Score is used for a number of things, including determining how likely you are to repay a loan or line of credit. The two main types of credit are revolving credit and installment credit. With revolving credit, you can pay the amount you owe down, or allow it to increase, such as a credit card. There may be a maximum balance, but there is no fixed starting balance. With installment credit, there is a single fixed initial amount, and the idea is to pay this amount down over time, eventually arriving at a zero balance. An example of installment credit is a car loan or house loan. Both types of credit affect your FICO score. For instance, if you have numerous credit cards and you’re late in payments in only one card, your FICO will go down regardless. This is bad because the rest of your credit card companies have the right to raise your interest just because your FICO decreases because you’re late in payment on one card. The typical number of cards you can have is three, beyond this number can be categorized as numerous. Your installment credit too affects your FICO score. If you’re having trouble meeting your car loan or your house loan payments, your FICO score will be reduced.
There are a few simple steps in establishing good credit.
*First, try not to hit your credit limit. When individuals use 60% or more of the available credit, this signals lenders that the individual might overextend. Using a minimal amount on your credit limit will give you a higher FICO score.
*Second, limit your credit report inquiries. Since each inquiry will appear on your credit record, lenders will be able to look into the number of times you have applied for credit. Having too many inquiries on your record is not a good thing.
*Third, try not to miss payments. If possible automate as many payments as you can. Delayed payments on credit bills will push down your credit standing. And remember, even though meeting your minimum payment is good, it’s even better if you can pay more than the minimum. Having the lowest possible monthly balance is a signal that you can indeed meet your obligations.
*Fourth, maintain long-standing accounts but close any accounts that are not being used. Companies are less likely to lend money to a financial ‘rookie,’ so the longer your credit history, the better your FICO score will be. If you happen to have a credit card that has been with you for so long and your credit standing on that card is good, keep it maintained. Having other unused credit cards will merely tempt you to go on an unneeded shopping spree. Closing these accounts will also prevent identity theft.
*Lastly, remember that all credit cards are different and should be handled differently. Picking a credit card that will fit your income and lifestyle will save you the trouble of long standing debt in the future.
Already Deep in Debt?
For those that are already in deep debt, you can still establish good credit. The most efficient tip would be for you to pay off standing bills. You don’t have to win the lottery to pay it all off. You can start small and then build your way into making a relevant dent on your debt. A little bit more discipline may be needed on your spending prowess, but the final outcome is worth it.
Individuals who do not have credit cards or have no credit history are not in good light with credit companies either. Having no credit history will affect you too. This is with regard to decisions about premiums or insurances even future jobs and apartments.
Moreover, having a credit card does not mean that you will fall into debt forever. When you have learned how to spend on a budget while keeping your income in mind, a credit card will be your best friend. The best starting point would be to start a credit history/line with a secured credit card. These secured credit card companies require a down payment before starting the account. This merely insures the company of your capabilities to pay your bills. The down payment entered will measure the credit limit of the card.
The bottom line is that establishing and maintaining good credit will benefit you from all angles. It is not an impossible dream to establish good credit. Simply understanding where you are financially and placing a budget on your expenditures and sticking to it will surely increase your credit standing.