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FICO scores, credit rating, and credit to debt ratio: all of these terms can
become very confusing. However, in order to build a solid financial future,
it is critical that you understand the fundamentals of your credit
dynamics.
Your FICO score impacts your entire financial life, from the
ability to obtain a mortgage to the rates on your car insurance. Therefore,
it is important that you possess and achieve the credit score it will
require to obtain homes, personal loans, vehicles, and other assets.
There are many things that you can do to maintain your credit score.
Something as simple as making payments on time shows responsibility and may
entice a lender to extend a loan on your behalf. There are several simple
steps you can take to build a better credit score.
- Open a banking account: Building credit is a very important part of
adulthood, and it can begin with the simple opening of a checking/savings
account. A bank can do more than hold your money; it can help build your
credit. For example, by opening a bank account and maintaining an active
balance, you will build security and trust with the banking institution.
You may then be able to use this security to obtain a loan from the bank. By
paying back the loan timely, the bank will report this to the credit
agencies, and your overall credit score will be positively affected.
- Maintain the same job and the same address for a period of time, and
this can help build and maintain the integrity of your credit score.
- Pay the minimum payment on time. Your credit score may be adversely
affected by something as small as the minimum payment being late on your
credit card. In addition, as interest can consume a large portion of your
payment, it is best to pay more than the minimum balance. This oversight
alone is a leading and detrimental factor in incurring on-going and negative
credit card debt.
- Build your credit with more than credit cards. Many financial
institutions offer secured credit cards for as low as $75 of secured assets.
Secured loans, or even a cellular phone plan, paid on time, can increase
your credit scores.
- Decrease the principal as soon as possible. If you are struggling with
debt, as more than half of Americans are, the most important thing to do is
pay down that credit card balance. If you have a balance of $1000.00, and
each month you pay the minimum payment, you are barely paying off the
principal. The staggering and sad fact is that more than 70% of your payment
is going to pay off the interest of the debt.
At one point in time or another, we will all experience the load of debt.
The danger of debt lies in the chronic condition of spending and living
above one's means. Resolution comes down to something as simple as buying
only what you can afford.
There continues to be light at the end of the credit and debt tunnel.
Secured credit cards, submitting payments on time, and maintaining a balance
in a bank account are all good ways to begin. The road may be long, but you
will reap the benefits of good credit once it is earned.
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