A Detailed Guide To Building Credit
A Credit Report Defined
A credit report is simply a report that shows your credit history and is linked to your credit score. The report gives potential lenders an overview of how likely it is for you to repay a loan and shows any other loans or debt that you currently have.
To put it another way, a credit report shows how well you manage your debts and whether you’re credit worthy or not.
Where can I get a copy of my Credit Report and see my Credit Score?
It’s very important to monitor your credit report to make sure your credit is in good standing. It’s also a good idea to review your credit report annually so you can be sure there hasn’t been any mistakes made to it and that there hasn’t been any fraudulent activity made in your name, like identity theft.
You can view your credit score and get access to your credit report at myFICO.
How Your Credit Score Is Determined
Your credit score is determined by a variety of different factors and the higher your credit score number, the better. Your credit score is important for many things like getting a loan, renting an apartment, buying a house, and it’s even important for when you’re trying to get hired for certain jobs.
Here are 5 key factors that make up your credit score:
1. Your Credit History: This goes off any loans or debt you currently have and/or debt you’ve had in the past. How often you borrow and how often you apply for loans or credit cards. It shows how often you’ve been approved for loans and credit cards and how often you’ve been denied. Your credit history also states if you’ve made timely payments in the past or not.
2. Your Repayment History: This shows whether or not you’ve made on time repayments on past loans or debt. If you’ve never missed a payment on past debts or always paid off your past debts, you would then be considered a reliable borrower, in which your credit score would be higher.
If in the past you’ve missed continuous payment deadlines or have ever filed for bankruptcy your credit score is probably lower. If you don’t know what your credit score currently is and want to know, you can view your credit score at myFICO.
3. Your Credit Limit: Based off your credit history, credit report, credit score, and your current income, lenders can determine a maximum amount of credit that can and should be provided to you. When you owe more than the credit that has been provided to you, or you’ve missed payments and your debts and have accumulated so much interest that those debts are now higher than when you originally borrowed them. This is also called the Credit Limit to Balance Ratio and can have a big effect on your credit score.
4. Types of Debt: Lenders want to know whats types of credit or debt you currently have. If you hold a combination of major credit cards, store credit cards, and loans this indicates that you’re capable of handling and managing different types of repayments and credit limits. For example, credit cards generally have smaller payments and a lender might want to know if you can manage a larger loan payment.
5. How Often You Receive New Credit: Lenders also look at how often you apply for and receive new lines of credit. A large number of new credit cards could indicate in a lenders mind that your having financial problems and that your possibly over extending your credit.
How To Get Credit With No Credit
If you’re young or around the age of 18, there’s a good chance that you’ve never had any credit. When you don’t have credit or never had credit it all it can be hard to get money lent to you.
When you have no credit or never had credit, it’s not that lending companies see you as a risk, they just simply have no idea how you handle credit or whether or not you’ll repay the money they lend you.
How do I begin to build credit?
One of the easiest ways to build credit is with a credit card and getting a credit card is as simple as applying for one. Although, you’ll want to be careful as credit cards can get you into trouble if you spend more than you repay.
Before you get a credit card make sure you have the discipline to not spend more than you can pay back otherwise instead of building your credit you could end up damaging it. I recommend only making small purchases with your credit card and then pay-off that amount in full every month. By paying the credit card balance in full each month you avoid paying interest and you’ll be building credit for yourself!
Once You Have Credit, Protect Your Credit
Three common ways your credit can get damaged:
The first and most common way your credit can become damaged or ruined is by YOU yourself. You can become your own worst enemy if you go crazy with credit cards or borrow more money than you can afford to pay back or make payments on.
The second way your credit can become damaged is if a error was made to your credit report. If this happens it can be fix by consulting with a credit expert or possibly by making a simple phone call. Although the sooner you catch it and get it fix the better. Another reason why it’s important to monitor your Credit Score and Credit Report regularly or at least on an annual bases.
The Third and sometimes the most devastating way your credit can be damaged is by fraud or identity theft. Identity theft is when another person steals your identity, either by attaining your social security number, credit cards, credit card numbers, or access to your financial accounts.
How to Protect Your Credit
There are a number of ways you can protect your credit from errors and fraud:
1. Monitor Your Credit. By checking and reviewing your credit report and credit score a few times a year or at least once annually, you’ll become familiar with the report and have a better chance of catching errors and any fraudulent charges or loans made in your name. You can view your credit score and receive a copy of your credit report at myFICO.
2. Protect Yourself. Today with credit and identity theft being so common and so easy to do because of computers and the internet, many times individuals don’t know their credit has been ruined or that their identity and all their financial accounts as been stolen until it’s too late.
Today, with the internet virtually everyone is vulnerable to identity theft and many companies and services have risen up to prevent this type of attack and misfortune. A good service will protect your financial accounts, credit, and identity on a continuous bases and alert you immediately if any suspicious activity takes place.
Services designed to protect your identity, financial accounts, and credit:
- Identity Guard: They offer 3-bureau credit monitoring and help protect your public records, financial information, personal data, computer, and more.
- IdentityForce: They’re one of the leading providers for privacy, securing identity, and credit protection for individuals, government agencies, and businesses. They provide $1,000,000 identity theft insurance to their members who use their service. You’ll also have peace of mind knowing that they have certified protection specialist available 24/7. Test them for free with their free trial.
- MetLife Defender: Like the other two above, MetLife provides proactive personal data protection. Once you’re a member they immediately begin searching for anything suspicious and protect your financial, personal, and health information from identity frauds. You can try their service for free with their 30 day free trial.
How To Fix Bad Credit
Fixing bad credit can take time. There’s no easy or quick way to fix bad credit yourself. To fix bad credit, the first thing you should do is sit down and figure out why your credit is bad in the first place. Is it because you missed payments? Borrowed more than you can repay? Is it because of an error on your credit report? Were you the victim of credit card fraud or identity theft?
After you determine why you have bad credit, write down how you’ll prevent yourself from having poor credit again in the future. Next, pay down any debt or loans you have outstanding. Then only make purchases with your credit card that you’ll pay off in full at the end of each month. By taking these steps, you’ll slowly begin to see your credit rise.
Services that can help you:
1. Ovation Credit Services: They specialize in repairing credit reports and offer a 100% customer service guarantee. Read the Full Review on Ovation Credit Services
2. Credit Assistance Network: They help consumers resolve and find solutions to complex credit problems. Read the Full Review on the Credit Assistance Network
3. National Debt Relief: They help consumers with unsecured debts. According to their website they offer consumers the lowest cost way out of credit card debt. Read the Full Review on National Debt Relief
4. CuraDebt: Has been in the business of debt settlement for more than 15 years. After fees, on average they save customers 40 percent on their debts. Read the Full Review on CuraDebt
Sell your current debt to a debt buyer or get a personal debt manager:
- American Debt Enders: They offer free credit counseling service and personal debt management. They do just about everything from lowering your interest rates to debt settlement.
Is It Necessary To Have Credit?
Believe it or not there are many people even today who never use credit and have gotten by just fine. One person I can think of in particular is my Grandpa who has never used credit in is life. To this day, he has paid cash for all his vehicles and homes. Although, because he doesn’t have any credit, whenever he wants to reserve or book a hotel room he generally has to have a family member do it for him, but that’s really the only issue I can remember him ever running into for not having any credit.
So do you need credit? I used the example of my Grandpa who has never used or wanted to use credit, but he is also very old school and was brought up in a time where if you wanted something you had to work your behind off and save-up until you had enough to pay for it. My Grandpa also had a very good job and was very frugal with his money.
Now back to the question, do you need credit? My answer to that question is no. If you rephrased that question to say, should you have credit? My answer to that question is yes. In today’s world having credit can make your life easier.
Many jobs today will run a credit check on you before they hire you, having good credit means you’re dependable and follow through with your commitments. Remember how I said sometimes my grandpa needed to have family members book hotel rooms for him, this wasn’t because he was poor, far from it, the man has plenty of wealth, but it was because he didn’t have any credit the hotels couldn’t determine his past payment history.
Books On Building and Improving Credit
1. How to Remove ALL Negative Items from your Credit Report: Do It Yourself Guide to Dramatically Increase Your Credit Rating
This book covers the secrets and methods that professionals use, such as attorneys and credit repair companies. It will teach you step-by-step how to remove all the nasty stuff on your credit report and improve or your FICO score.
2. Hidden Credit Repair Secrets: Step-by-Step 6 Letter Dispute Plan Included
The book goes over credit repair strategies used by professionals, along with a step-by-step guide on how to repair your credit.
3. Credit Repair: Make a Plan, Improve Your Credit, Avoid Scams
Teaches you credit repair strategies to enhance your credit report, become debt-free, and live a better life.
7 thoughts on “How To Build Credit”
Good job sharing this! I looking for advice on how I can have a good reputation for my card account and it seems I just found exactly what I’m looking for. Thanks!
Your credit report defines you and its your tool to get qualified for any kind of loan you wish to apply thus, building a good credit is a must for a higher possibility or chances of getting a mortgage.