Credit can feel like an obfuscating phenomenon. It is difficult to get a handle on it, but if you get familiar with the ways of credit you will be able to create a better financial situation for yourself and utilize lending to your advantage. There are a few simple principles when it comes to building credit. If you want to raise your credit score and gain new financial opportunities, here are five tips to help you build credit and use it to your benefit.
Pay What You Owe Immediately
The guiding principle of credit is that you should pay back what you owe immediately. You should never make only the minimum payment. If you put something on your credit or take out a loan, it’s imperative that you return the moon as soon as you can. Then credit will only benefit you. But if you wait too long and fail to make the payments that you need to make, credit will become a burden. Minimum payments are designed so that they increase your interest rate and you end up paying more in the end. It should be a hard rule for you to pay off what you owe immediately, raising your credit score.
Use Credit
You can’t build your credit score, however, if you don’t use it. Once you have paid back everything you owe to the lender, you should start using credit carefully. If you have a credit card you can use, make a purchase on it but pay them off right away. Every time your balance is zero you will increase your credit score. Unfortunately, you can’t raise your credit score if you aren’t using credit. When you choose to take out a loan, you should make sure it is one that you can handle. Pay it back immediately and you will increase your score. Still, if you owe someone money you should pay that back before putting more on your card.
Use a Starter Loan
If you don’t have any credit at all, starter loans are a good option. These loans are designed for people who don’t have credit. They can provide a great way for you to use credit without having a score at all. You will also get extra cash in your pocket. Starter loans should only be taken out when you don’t really need the money that much. Then, by paying it off immediately you will have the chance to start a healthy credit score off on the right foot. It’s a great idea to use starter loans if you’ve never taken out a loan and don’t have a credit card. It will, of course, help you get started with good credit.
Consolidation of Debt
Do you owe multiple debts to different creditors? This can feel overwhelming, like you’ll never get out. One thing you should do is consolidate your debts if you have the chance. This is essentially a loan designed to pay for your other debts and create a single payment with a lower interest rate. You will then know exactly what you should be paying every month and exactly what you are paying in interest. Consolidation should only be done when you don’t have many other options, but if you can get ahead with consolidation you should do it to alleviate yourself from debt and build your score.
Take Out a Mortgage
Do you want to buy a property? When you’re in a good financial situation and are looking for property, utilizing your mortgage options can help you build credit. While you will probably need a decent score to get approved for a mortgage, making hefty payments every month will greatly improve your credit standing. Work with a good mortgage lender who has your best interest in mind. Like anything else, there should be a plan to pay off the money in a relatively short amount of time.
Whatever your situation, building credit may seem tough but it’s not. You just need to know what to do, what not to do, and how quickly you need to do it in order to build your credit score and create a better financial situation for yourself. So, if it’s time that you have bad credit, you need to work intelligently to get there. You can do it!