If you are just starting out or if you have experienced a major financial setback such as bankruptcy, then you are well aware that establishing and building good credit can be an uphill battle.
In order to get good credit, you have to have good credit, or so the story goes. This will take time, patience, and perseverance.
Here are five save ways to build credit.
1. Begin with the Basics
The first, most important step in rebuilding your credit is to start by getting a firm grip on your income and your expenses. Create a budget, and make sure you stay within your budget.
This simple step can help you see where your money is going, and help you determine if you are spending your money wisely. This will help you develop essential money management skills.
2. Obtain a Secured Credit Card
One of the strange paradoxes of credit is that in order to get credit, you have to have a good track record of using credit responsibly. A secured credit card is a credit card in which the credit line – and potential debt – is secured by a deposit held in escrow by the issuing financial institution or bank.
This deposit, which generally equals 50 to 100 percent of the credit line assigned to the card, is a guarantee or ‘good faith’ money that ensures that the card issuer can recover at least part of the debt if you fail to pay.
The issuer will generally return the deposit after a pre-determined amount of time if the account is kept in good standing.
3. Pay off Credit Cards Monthly
Never charge more on your credit cards than you can afford to pay off each month. Carrying a balance from month-to-month can quickly grow into a debt you cannot afford to repay.
A good rule of thumb is to never charge more than 30 percent of the available credit line each month. For example, if your credit card has a R5,000 credit line, you should never charge more than R1,500 each month, and only then if you can afford to pay it off at the end of the month.
4. Pay All of Your Bills on Time
The most critical part of rebuilding your credit to make sure you pay every single bill on time, every time. Short term loans, utility payments, mortgages – each and every one of them must be paid on time, every month, in order to rebuild your credit.
At this crucial stage, a single derogatory comment on your credit report or a collections action over an unpaid debt could have devastating effects on your efforts to rebuild your credit. One derogatory comment could easily undo weeks or months of hard work of rebuilding your credit.
5. Monitor Your Credit Report
Your first step after your bankruptcy has been discharged should be to get a copy of your credit report and verify that every debt covered under the bankruptcy now show a zero balance. Any discrepancies should be reported to both the creditor and the reporting credit agency as soon as possible.
Also, under the federal Fair Credit Reporting Act, you are legally entitled to a free copy of your credit report each year from each of the three major credit reporting agencies – Equifax, TransUnion, and Experian. Use these free reports to make sure your credit information is correct and up-to-date.
More Ways to Build Credit
Your credit rating is determined by how well, and timely, you pay off your existing financial responsibilities.
Keeping your bank accounts in good standing is also going to be looked at, as well as the length of time you have held your accounts with that bank. For more ways to build credit, please contact us.