If you asked most people how their credit score came to be, they would likely return a blank stare. Even, surprisingly, people with excellent credit. Oftentimes, people with good credit ended up there via a process of opening all of the normal accounts, making regular, ontime payments, and as a consequence, ending up with a good credit score with as much luck involved as planning, and oftentimes more so. For a person just beginning off, or for the person working their way back to having good credit after their credit has been damaged, there is a faster, more systematic way of going about the course of strengthening your credit score on purpose.
When you start off, and have no credit, it's tough to get any traction as most creditors want you to already have some form of credit history before they will lend to you. It's the very definition of a catch 22 that way. Here are some suggestions to take some of the guesswork out of how to build your credit score on purpose:
1 Begin with the bank or credit union you use already. Use a secured line of credit (the bank holds your cash, and uses the cash they are holding as collateral to lend against it) to start building a credit history. You can do this with a relatively small amount, along the lines of $500. The benefit of starting with your own bank: You can usually make arrangements for your payments to come right out of your own checking or savings account for ease of convenience.
2 Next, move onto credit cards with low balances. You may have to shop around a bit, and be very aware of the terms they offer. If a significant monthly or annual fee is offered as part of the terms, continue looking around. Use them sparingly, and pay them off at the end of each month to avoid paying interest.
3 Keep an eye on your credit score. As your secured loans and "starter credit cards" begin to show up on your credit report, your credit score will start to establish and grow stronger. Once your credit score grows strong enough, you can shop around in order to get better interest rates on your credit cards, then move your balances to the cards with the best terms.
4 After you have made on time payments for a while on the accounts described above, you will have much better chances to qualify for automobile loans or even home loans. Keep track of your credit score as time goes on so you will constantly know where your credit stands.
Whether you're just starting off, or repairing your credit after taking some knocks, these simple steps can help you build your credit score. And a stronger credit score can make all of the difference in the world when it comes to the rest of your purchasing career.
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