Building good credit is something that should be taught at an early age – maybe in school along side Home Ec as a basic life-skill. Credit rating has become a hot topic due to the economic downturn, since a good rating is few and far between these days and a bad one can haunt you in all life’s larger decisions – like applying for a mortgage loan.
So, let’s take credit ratings back to the basics with simple do’s and don’ts.
Do pay off your credit card balance – No lender can look past hundreds of thousands of dollars of debt. Keep your credit card balances under 30 percent of your approved credit level.
Do pay all your bills on time – This seems simple, but is one of the most effective ways to insure a good credit score.
Do understand that it is never too late to improve your score – It is never too late to turn things around. Start paying your bills on time and don’t overspend.
Do establish various types of credit – This does not mean to go buy a Mercedes because you need to build credit, or to apply for Target, Younkers, Dillards, Macy’s and JCPenny credit cards. Instead, think about ways you can build your credit – like getting a small furniture loan instead of paying cash up front. Some places even offer no interest for two years. And if you pay it off in time you’ve built credit and didn’t pay any interest!
Don’t make any big purchases if you are planning to buy a house – i.e., car, furniture, etc. – until you’ve closed on the house, because credit is checked again the day before closing. You could be denied the loan.
Don’t strictly pay the minimum balance of your credit card bill every month – Making only the minimum payment each month increases the amount of time it will take to pay off your debt and the amount of interest you will pay.
Don’t cancel your credit cards – Frequent closing and opening of accounts may decrease your credit score.
Don’t completely skip a payment – Being a few days late with a payment isn’t too bad, but skipping a payment all together is detrimental to your credit score. Don’t be lazy, just pay your bill.
Don’t bounce checks – Though your overdraft may not show up on your credit report, most banks have their own system to track customers with bad finance habits.
These may be things you did or did not know before, however, it’s never bad to review the basics. For those who can’t see a light at the end of the tunnel – it is never too late to begin turning your credit rating around.
Buying a home starts with gaining good credit so you will be approved for a mortgage loan. So whether you have bad credit or no credit just follow the basic rules and you’ll be on your way to financial success!