Most people, when asked how their credit score came to be, would most likely return a blank stare. What's even more suprising is when you see this reaction from people with excellent credit. Oftentimes, individuals who have good credit arrived there by way of a process of opening all of the normal accounts, making regular, ontime payments, and as a result, ending up with a good credit score with as much luck included as strategy, and frequently more so. For an individual just beginning off, or for the person trying to repair their credit score after their credit has taken a beating, there is a faster, more organized way of going about the course of bolstering your credit score on purpose.
Start with your own bank or credit union. Use a secured line of credit (the bank holds your cash, and lends you cash against it) to establish some credit history. Start with something small, like $500 or so. 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.
Next, move onto small credit cards. You may have to shop around a bit, and be very aware of the terms they offer. If they expect you to pay a significant monthly or yearly fee for the card, keep looking around. Use them sparingly, and pay them off at the end of each month to avoid paying interest.
It's a good idea to, now and then, shop around to see whether or not there are better rates and terms available with other credit card companies. Using secured loans and your first credit cards will, As time goes on, Work to raise your credit score more and more as time goes on. This doesn't, however, mean that you should stick with them for eternity. It is very beneficial to go shopping for a new credit card about every six months until you get a couple of credit cards with really good interest rates and terms. Your goal is to eventually have a couple of cards with very good terms, and then, anticipate holding onto them for a while, as the your credit rating will continue to improve the longer you have accounts open and in good standing. As well, try as hard as you can to make sure your balances are low compared to your limit. Maxing out a credit card is a great way to bring your credit score down almost overnight.
Using the two types of accounts listed above will lay the groundwork for you to develop a great credit score, and help you qualify for home and auto loans. A good payment history on these loans will help your credit to grow as well,, and over time, will help you build a rock solid credit score. Keep a watchful eye on your credit report so a general idea of your standing is always close at hand.
So regardless of whether or not you're restablishing your credit after a financial crisis, or struggling to establish your credit for the very first time, you can use these simple steps to get your foot in the door of the credit world.
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