admin posted on October 07, 2009 10:27
I Need Good Credit for What?!
How to build and maintain good credit
Credit used to only be needed for a mortgage, car loan, or other small loan. However, society is becoming increasingly dependent on using credit to make decisions about extending goods, services, or a job to you.
We can assume that the majority of people understand their credit is put under a microscope when it comes to applying for a mortgage, but did you know that your credit is also used in rental decisions by landlords? Landlords consider your lease a loan. You’re being loaned a place to live and the landlord wants to know you’ll pay it back. If you have bad credit, you could get denied for an apartment or other rental property.
Many employers, including the military, are now taking your credit into consideration when applying for a job. If you haven’t demonstrated financial responsibility, a prospective employer might be hesitant to hire you. For example, the employer might believe your debt is too high for the salary offered, or that you are just irresponsible.
You may be shocked to learn your credit is needed to establish utility services. This applies to most utility services including cable, telephone, water, and even a cell phone. Companies won’t ‘borrow’ you one month of service if you can’t pay your bills.
Since your credit is defined by how you’ve paid (or not paid) your bills in the past, many businesses use your credit to predict your future financial responsibility. Anytime you need to borrow money, or even services, your credit is called into question.
Building Good Credit
When you're just starting out, it may be difficult to establish your credit history. To build good credit, there are several steps you can take, including:
- Open a checking or a savings account. This is a convenient way to pay your bills and is particularly important to prospective landlords who expect to receive rent checks each month
- Open a retail store account. Some stores have their own credit cards. The interest rate on this type of card tends to be high, so you may want to charge very small purchases that you can afford to pay in full each month.
- Ask a family member or friend to co-sign a loan for you. Making regular payments shows creditors you are a responsible credit consumer. After six months to a year, you may be able to apply for credit on your own.
- Open a secured credit card. A secured credit card uses a savings account as collateral to secure the card limit. If the card issuer is not paid back for the borrowed funds, they collect it from the money in the savings account. Most credit card companies will give you one regardless of your credit; however, they may require some money down. It is also a great way to rebuild credit.
Maintaining Good Credit
Once you've established a good credit history, it's vital that you keep it that way. Keys to maintaining good credit include:
- Pay your bills on time. This is the single most important factor to maintaining good credit. Creditors want to be certain you can pay at least the minimum due on time each month.
- Don't overextend yourself. Be careful about having too many credit cards and charging up to the credit limit. You have to be able to make the minimum payment each month, which could be a higher amount. Also, when there's no available credit on an account, you can't use it for emergencies.
- Keep your open credit accounts (such as credit cards) to a minimum. If you have a large amount of accounts open, your future creditors may count the combined open credit line. On the other hand, keeping a certain number of accounts open with a zero balance shows a good credit history and will give you a higher credit score. You need to find a balance between too many and too little. Remember that the key is having a paid-off account. If it is too difficult for you to resist charging up an account, it’s better to just close it.
- Review your credit report regularly for inaccuracies. Creditors evaluate your financial health by reviewing your credit report, so be sure it's correct. You are entitled to a free credit report once a year. You can visit AnnualCreditReport.com to order one.
- Avoid bankruptcy. Bankruptcy is often considered the most negative aspect of a credit profile, so don't make the decision to file without carefully considering your alternatives. It takes a huge toll on your credit and it takes years to recover—a bankruptcy can stay on your credit report for as long as 10 years. Make sure you consult with a bankruptcy lawyer before you even consider it as an option.