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How to Improve Your Credit Through Money Management

How to Improve Your Credit Through Money Management

Good credit isn’t something that’s created overnight.  However, bad credit can result from just one or two financial mistakes.  By using solid money management skills you can learn how to maximize your credit report to get a higher credit score.  The higher your credit score, the better loans and lower interest rates you’ll have to pay over your lifetime, resulting in more opportunities and in saving tens of thousands of dollars in interest payments.

When learning how to improve your credit, you should realize that you start out with no credit until at least eighteen.  Then, when you open a credit card or other type of credit account, the details of your accounts create your credit report.  By staying in good standing with your accounts your credit report will slowly improve over the years.  The longer you have accounts How to Manage Your Money and Build Your Creditopen and the more different types of accounts you have, the higher your credit score will go.  For example, if you have a history that shows a few long term credit cards, some car loans that have been paid off, a mortgage or two, and maybe another loan of some sort, your credit will look better than someone who has only had a single credit card from all of their life and never taken out any other debt.  That’s because your credit score is a ranking that assesses your risk level to lenders.  A good credit score means that you are a good risk for a lender because you are very likely to pay back the loan, as your history shows.

There are lots of other tips to help improve your credit.  Here are some from someone that writes:

 Using Credit Cards to build a credit history

One of the easiest ways to build credit is with credit cards. But before you dive right in, you need to first understand how to use them responsibly, particularly if your goal is to improve your credit score. Here are some simple rules:

Start modestly – Start off slowly. Get yourself into the habit of paying your credit card bill monthly before using your card for a wider variety of expenses. Start with things like groceries, gas, and things you usually pay cash for.

Pay the entire balance each month – This is the key to making the most of credit cards. Interest rates can be high, especially for those just starting to build a credit history. Avoid paying interest or using a credit card can become very expensive. This takes both discipline and oversight of your finances.  And if you can’t do this, you’re probably better off without a credit card.

Use your card regularly – There’s a common misconception that you must leave a balance on your card (and pay interest) in order to build credit. This simply isn’t true. You do, however, need to continue to use your card regularly in order to build your history.  So use the card as regularly as you can, even to pay monthly bills you’d pay cash for anyways, for example.  But continue to pay the balance off in full every month to avoid paying interest.

Never exceed your budget – In other words: don’t buy anything you won’t be able to pay for at the end of the month. In fact, at first, only use it if the money is already in your bank accounts. That way you’ll never have to leave a balance and pay interest….

You can read the rest of the article here at A beginners guide to building a credit history.

As this article states, using a credit card in the above matter can help build your credit profile a little quicker than the way you may currently be using your cards.  It’s important to understand what effect your useage may have on your long term credit.

Finally, in order to understand how to improve your credit, we must talk about negative marks.  A negative mark on your credit report is any kind of unpaid, late or disputed loan or charge.  Any type of negative mark will significantly decrease your credit, and it will decrease it immediately.  That means you have to manage your money so that you never miss any payments on your accounts.  Whereas credit accounts are the only accounts that help your credit, almost any type of account can hurt your credit.  For example, if you don’t pay your phone, electric or even your cell phone bill, you will get sent to collections and the date and amount of your default will be reported to the credit bureaus.  Hospital bills and construction bills can also show up on your credit.  Managing your money wisely means staying on top of your bills and if you have any disputes, making sure that they are worked out before they are reported to your credit agency.

It’s also important to dispel one myth.  That myth is that all negatives from your credit report disappear after seven years.  This is simply not true, and here’s why.  When a negative hits your credit report it shows up immediately.  Then, after months or years it will be sent to collections.  When the collections company starts calling, they will hit your credit report again and refresh the date on the negative mark.  If the debt doesn’t get paid, and in some cases it won’t be your fault, it may get sent to another collections company a year or so later, at which point it will hurt your credit again and last seven years from the last time it went to collections.

The takeaway here is that it’s just smart to know how credit works so that you can properly manage your money to maximize its value.  It’s kind of like knowing how taxes work, so you can make tax worthy decisions throughout the year instead of just when your taxes are due.

{ 1 comment… add one }
  • dawn August 25, 2012, 9:31 pm

    Also, If you are unable to get a credit card, then a secure credit card can help as well. Currently I’m working to credit building, my credit is “ok, not bad but could be better” as one banker put it after checking my credit. I also recently did some digging into credit unions, and learned that there are some credit unions that will give you a secure credit card, and take the initial amount you provided to secure the line of credit into a GIC to earn interest for you. I thought that was fantastic, credit rebuild plus earn a little bit of change as well.


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