After spending a long time taking control of your credit, you might have finally cleared some of your debt. Your next step should be building good credit so you can get lower interest rates on loans, and improve your chances of getting a mortgage. Just as you must spend money to make money, your have to spend a little to build a good credit score. Here are a few ways you can begin.
Establish a line of credit
The majority of your credit score is based on your payment history and how much money you, therefore a credit card is the easiest way of establishing good credit. You might feel nervous about using a card if it was the biggest cause of your debt, but you shouldn’t have any problems as long as you use it responsibly.
Keep your utilization rate below 10 percent, and pay back what you owe in full every month. You should also never take out more than one card. If you have too many credit cards it reflects poorly on your credit report. You may justify your store cards because of the discount. The stores are not offering the discount to be nice. They know that the majority of people do not pay off the balance in full each month, and they make a lot more in interest than they offer you in savings. Don’t give in to temptation.
Apply for credit you need
While credit cards are one way to build up your credit, it’s likely that you’ll need to take out a loan for bigger purchases down the road. If you’re thinking about buying a new car, for example, find an average car loan interest rate to finance the bulk of the expense. Finding a good rate should be easier now that you’ve cleared up some of your previous bad credit. Now, you just need to show lenders you’re a responsible borrower by borrowing and paying it back. Only spend small amounts and then keep clearing the balance, thereby not being charged interest.
Make all your repayments on time
As you might have experienced in the past, late repayments can set you back in your payment plan, and they have a negative effect on your credit. To make it easier for you to make your repayments in full, never use your credit card to buy an item you won’t be able to pay off on time and in full each month. If you need further guidance; don’t charge something to your credit card that you wouldn’t pay cash for.
Keep your old debt on your report
Believe it or not, it can greatly benefit you to leave evidence of your old debt on your credit report. Debt that you’ve managed to deal with and clear off is evidence of a good credit history, and it shows that you can be trusted to follow through with repayments. You don’t want this to come off your history. You should also check you report annually.