Building Your Credit Correctly!
Isn’t it kind of funny how you need ID to get ID? To get a passport or driver’s license, you need a birth certificate. The same notion exists for credit. You need a credit history in order to get a good credit history. But how do you go about doing that? Here are methods for building a good credit history if you’re just starting out. Taking the care to build a solid credit history from day one will be much easier than trying to fix deadly mistakes that are easily made when you don’t understand the process.
- Pay your bills on time every time. Yes, it matters if your payment gets to the phone company a day late. Some creditors are stricter than others, but implementing a personal pay-on-time-every-time policy will work wonders for your credit. To make this easier on yourself, set up a day on your calendar every month or every two weeks to work out your bills. Set a reminder so you won’t forget and give yourself a few days to a week of buffer so you’re sure to get the payments in on time.
- Pay your loans on time every time. This includes school loans, car loans and any other loans you may have taken out early in life. Even if your parents have co-signed with you in order to get the loan in the first place, the payment history will still reflect on you since you are the borrower.
- Apply for a secured credit card. Secured credit cards are different from other credit cards but can help you build credit history. Here’s how it works: You deposit a certain amount of money at the bank where you are getting the card and in return, they give you a Visa or MasterCard with a credit limit matching the amount you put upfront. Watch out for cards like this that charge a large upfront fee. Ask your bank if they have a program like this.
- Keep your balances low. Spending up to your maximum limit on credit cards can hurt your score so aim to keep your balances below 35% of the max.
- Don’t cancel old accounts. When you’re trying to build a good credit history, it’s best to leave old accounts open because having a longer history will help improve your score. However, when it is time to close an account, it’s best to close it the right way so that it reflects better on your history and also so you have peace of mind in knowing the account is no longer active.
The Right Way to Close Accounts
When it’s time to break up with your credit card company, call the toll-free customer service number on your account statement and connect with a live person. Let the operator know that you would like to close your account “at the cardholder’s request.” Be sure to specify that you want the file to say it was the cardholder’s request and not the lender who terminated the account. Although it’s a minor point, this will look better on your credit history.
Follow up the phone call with a typed and signed letter that says you are following up to confirm in writing that you requested your account be closed “at the cardholder’s request” by phone on whatever date you called. Keep a copy for your records.