My parents-in-law bought everything cash. And when I say everything, I mean EVERYTHING. Their cars, their house, appliances. Admittedly, my father-in-law worked for a government department that offered free housing as a perk, so he could save the money he would have spent on a bond towards buying their first house using cash.
Nowadays, we actually cannot afford to live on cash any more. We all need credit at some point, whether to buy our first car or to buy our first house.
Very soon you discover as you apply for these loans, that you are required to have some form of credit history. Now, credit can be a very bad thing, especially if you have the combination of the following two things:
Good credit and bad self-discipline.
This can quickly send you into a spiral of applying and getting more and more credit and soon you will find yourself in a situation where you have a bad credit rating and maybe not even the assets any more that you purchased in the first place since you over extended yourself and could not keep up the payments.
You want to be in a situation where you have a good credit rating, but not too much credit usage as such. How on earth do you achieve this balancing act? Also, if you have no credit history at all, you will need to ensure that you build some credit history. Creditors are actually not interested in your employment history or your actual income; they only want to know that you will be able to repay your debts, and the only way that they can know that is to look at your credit history.
The best way to build a credit history is to apply for credit and then put strategies in place that will force you to maintain your self discipline so that you repay the credit obligation according to the right parameters (timeframes, amounts, frequency) so that you can thereby build your credit history.
Some examples of strategies to build a credit history are:
Apply for a personal loan where the monthly payments are automatically deducted from your bank account. In this way, you cannot skip payments. Make sure that the loan period is for longer than 10 months else it will not help you much with establishing a good credit rating. Do not spend this money, place it in a savings account. If you have no credit history, banks might not want to give you an unsecured personal loan. You might have to get a cosigner on the loan in the form of a family member, although this is always an uncomfortable situation to be in. Make 100% sure that you repay the loan in the time period and with the correct instalment amounts!
You might also want to sign up for a secured credit card.
These work the same as other credit cards, but you need to pay some form of collateral up front into a holding account. The amount that you pay in will be directly related to the amount available on your credit card. Once again, it is important to manage your credit card responsibly. You will still have to pay in a monthly amount into your credit card. Once again, see what arrangements you can make to have the minimum payment amount deducted from your banking account so that you can be sure of not skipping payments. Decide on a regular monthly expense that you want to pay using this credit card and DO NOT use the card for any other expenses. The golden rule for credit cards is not to let your credit card balance go above 40% to 50% of the credit available on the card. Be careful when taking out a secured credit card that you find one that does not charge you too high annual fees or too high credit rates.
Using some of these strategies, and above all, maintain your self-discipline and soon you will find that you have a good credit history built up that you can use if you want to apply for further credit such as buying a car or financing another big asset. Always remember though not to over extend yourself since your good credit rating might start to slide and soon you are sitting with actual bad credit, as opposed to just not having a credit history at all!
Author Resource:
John Thackeray manages a website devoted to information about how to increase credit score and how to raise credit score .
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