These days, it’s hard to get by without having a good credit score. Just about every American citizen knows what a credit score is and a few things that will hurt your score, however, too many people don’t really know how to get a good credit score. In this article, I will explain what a credit score is, how to get a good one, and how to keep it once you have it.
What Is A Credit Score?
A credit rating is a number that is calculated by the credit reporting agencies. Your credit rating follows you around no matter where you go. If you decide to get a loan or a credit card account, your credit rating will play a crucial role in the decision of the bank that you applied for the loan at. The higher your credit rating is, the more likely you become to get approved for the loan. But why is this? Lenders use credit ratings to find out if a borrower is worthy of the loan being asked for. The credit reporting agencies use your past payment history on many loans to calculate the risk for the lending institutions. If you are a high risk borrower, you will have a low credit score, if you are a low risk borrower, your credit score will be higher.
How To Build Your Credit Score With Credit Cards.
Fortunately, you ultimately are the only person that can affect your credit score. There are many ways to go about building credit history to raise your credit score. However, I have found that using credit card accounts to build your credit rating is the least time consuming way to go. If you can get approved for a unsecured charge card, this is what you will want to use. However, if you are reading this article, you most likely don’t have very good credit and in that case you will need to go with another option. There are a great deal of credit card accounts out there that were designed to help consumers with bad credit. These charge cards are called secured credit cards.
What Is A Secured Credit Card?
Secured charge card accounts are charge card account accounts that are designed for people with limited to no credit history or bad credit history. With secured credit card accounts, the banks take no risk while giving you the opportunity to borrow cash and show that you are worthy of an unsecured charge card account. I know the question, “if you are borrowing money, how is it that the banks are not taking a risk?”. The answer is a pretty simple one. Secured charge cards start with the word secured because you need to place a cash security deposit with the lending institution to get the card. This cash deposit then becomes your credit limit. In a sense, you are borrowing your own money so the lending institutions are not taking a risk by lending it to you.
Once I Get The Secured Credit Card, What Do I Need To Do?
Once you get the secured charge card, it is important that you use the card properly. Here are a couple rules to follow when using secured charge cards to build your credit score:
Rule #1: Never spend more than 50% of your credit limit – Your credit limit is the amount of money you are able to spend using the credit card. Spending more than 50% of your credit limit demonstrates to the lending institutions that you are in need of cash and will make you look like a high risk borrower.
Rule #2: Pay on time! – Always make sure to pay your credit card bills on time. It is extremely important to make sure that your payments are not only sent on time but also received on time. A great way to ensure that your payments will make it to the bank on time is to mail them out at least 2 weeks in advance.
Rule #3: Show consistency in your payments. – Showing the banks that you not only are able to make your payments but you make them on time and budget them will will dramatically increase your credit score. Always pay more than your minimum payment and make sure that you stay consistent with your payments.
After about a year following these rules, you are almost guaranteed to have a good credit rating. The key is to maintain the credit ratings once you have them and that is pretty simple. Just continue to follow the same rules and you should be fine!
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