A Solid Strategy For Building Credit

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Building Credit

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Boosting your credit score is always a good idea but you should go about doing it the right way. Do a little research to make sure you have the proper tools, especially if you are new to credit. Most people would agree that, even in a tough economy like this one, a good financial strategy involves establishing a solid credit history. With this, though, comes great responsibility; not just in maintaining a credit record but also in doing all of the homework involved.

Establishing and improving your credit history involves so much more than just getting approved for a new credit card and then making payments, but that’s a start. If you are new to credit, however, it is perhaps even more important to get started on the right foot. Most people aren’t as prepared as they think they are when it comes to getting started with credit and this can quickly lead to issues that are not only damaging to your credit score but can also create long term problems that are hard to fix.

Obviously the best strategy, then, would be to get yourself into a situation where these issues are not a concern. Even if you are good with numbers and responsible with most things you do not want fall behind with your credit. The first thing you need to do is recognize what your actual monthly budget is. Take a look at your paystubs and log how much you actually make in a month and then take a realistic look at your expenses. If you have trouble with this, you can use any of the many budgeting apps available online and through mobile carriers. Obviously, you can also do this the old-fashioned way by writing it all down.

Once you have a budget and you know what your cash flow situation is, you are ready to observe how much you can afford to pay every month in charged expenses. Your goal should be to get a credit card to cover certain bills, things you already pay for. Groceries, for example, are a common expense that you have to pay every month. Instead of using cash, charge your grocery purchases to a modest credit card and then pay off the balance at the end of the month.

It is most important to pay off this balance then to make the minimum payment and put some money in savings. Remember that your goal here is to establish a solid credit history and you can only do this by making substantial payments in this way. Paying in full will significantly boost your FICO score, which will improve your status with many other financial institutions almost immediately. Since your FICO score depends on your payment pattern and overall balance-to-credit ratio (which together equals about 65% of its ratings formula), making large payments that keep your ratio high will quickly boost your score. Financial institutions might disregard your age or lack of long-term credit in favor of your impressive credit score.

The type of credit you use is also important, but minimally. Obviously you don’t want to start out jumping around and opening all kinds of accounts just to boost your score. As a matter of fact, that is actually a better example of irresponsible credit management than limiting your credit. Get started with one card that you can pay down quickly and regularly and when the time is right – often when your score breaks the 700 mark – you can take out another card. Consider one with a rewards program that will let you earn cash back or travel rewards to help encourage you to continue making these responsible credit moves.

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About Author

Casey is a seasoned writer in personal finance. He has written a number of articles that have been published in magazines and blogs around the country. His advice has helped millions make better choices about how they save their money.


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Advertiser Disclosure

CREDIT DAD is an independent, advertising-supported website. Many debit cards, credit cards and other financial offers that appear here are from companies from which CREDIT DAD Websites receive compensation. This compensation may impact how and where products appear on this website (including, for example, the order in which they appear). CREDIT DAD Websites do not include all card offers in the marketplace.