Tips & Tricks to Establishing Credit
Lending institutions such as banks and credit unions give loans to customers based on the likelihood they will be able to pay them back. They determine the risk based on your credit history. The credit score is also necessary for setting an interest rate. For these reasons, not having one is a huge obstacle to securing a loan. The following are a few tips to establishing credit.
The Simplest Solution: Establishing Credit Immediately
Open a checking account with a bank or credit union as soon as possible. This institution will be your best bet for a loan, provided you establish a good relationship with them and never allow your account to overdraft.
Most times you can apply for a secured credit card through these institutions. All you need to do is deposit a specified amount of money with your bank or credit union, who will then issue you a bank card. Your line of credit will be extended as you remain in good standing.
Applying for a line of credit at a department store or for a gasoline card is another great way to start building credit. Just be sure to pay off the balance every month to avoid going into debt.
Common Pitfalls to Avoid
A common mistake when establishing credit with a new credit card is to automatically take the maximum line of credit offered — it may be more than you can afford. If you are unable to pay off the balance every month, you are spending beyond your means. Don’t lose track of membership or subscription fees that are automatically drafted from your credit card.
What if I Need a Loan ASAP?
If you need a loan right away and can’t wait for your credit to build, there are alternative ways banks can evaluate your financial habits. A stable job history is important; so is rental history. Lending institutions like to see that you are staying in one place and working a steady job for a long time. They also look at whether you pay bills on time. It’s good to take sole responsibility for your finances. Don’t lend anyone your credit card, ATM or debit card, and don’t give others access to your checking account. Be sure to switch utilities out of your name when you move.
Once you’ve established credit, don’t rest on your laurels. Make loan payments on time every month; every late payment will hurt your score. Maintaining good credit is a lifelong commitment: Time will reward you. Having an excellent credit score will be well worth the effort. The best decision you can make now is to visit a specialist who can consult with you based on your goals and circumstances. Please contact us today.