You may be wondering how to build credit. Well, as the saying goes, knowledge is power. Now that you understand how to build credit on the low ground floor, it’s time to go out there and do exactly that. You’ll be setting yourself up for quite a lot of future savings and a much brighter financial future. If you want to know how to build credit, read on.
The first step on how to build credit is actually getting your hands on some credit scores. You can get a free copy of your credit report from all three of the credit bureaus. It doesn’t matter which one. After you’ve gotten a hold of your reports, go over them for any errors that may be present. Also, inquire about any delinquent accounts you have that are not reflected on your credit reports.
Next, know your PIN. Your credit history will begin with you, as an authorized user on a credit card account. That is the name on the line for the person or company who has granted you permission to use their card for purchases. Make sure that the PIN number is always displayed and never hidden. This way, if you ever fall behind in a payment, the issuer will have the ability to take possession of your PIN and freeze your account.
Another tip on how to build credit is to limit yourself to using one or two credit cards. It’s not helpful to have many credit cards, as this can really spread your risk. Many credit card issuers actually check your credit report before they give you a card. They will also look at how many times you have defaulted on payments and other things that may negatively reflect on your credit score. If you do have too many credit cards, the risk is spread out between too many card issuers, which makes it harder to qualify for more of their offers.
Be sure to close all accounts that are unnecessary. Many people think that by having several credit cards, they can leverage their good credit into getting more. The problem is, by having too many accounts, you actually increase the chances of missed payments and other fees. If you want to learn how to build credit, focus on just having one or two accounts and then close them when you don’t need them anymore.
Also, be sure to keep old accounts open, even if you think you don’t need them. Lenders consider current accounts less risky than accounts that haven’t been used in a while. If you have less risk, then you will get better interest rates on these types of accounts, which will help you lower your overall credit scores.
Be aware of when you should start closing new credit accounts. Most lenders recommend that you close new accounts within three months of opening them. This helps your credit score since you aren’t using the account as much as you should be. On the other hand, closing new accounts in a short period of time helps you avoid paying penalties that come with late payments.
Finally, be careful how much money you leave in your revolving credit limit. Remember that lenders consider your revolving limit to be your credit utilization. If you consistently spend more than you have, this is considered risky debt. Therefore, never use all your available credit limits-especially if you have some extra cash lying around. Remember that there is a limit as to how much you can charge on each account, and if you get caught, your entire account could be closed.