Credit is a fact of financial life for the great majority of Americans. The trick is to manage it so that it doesn’t manage you. A blessing when you’re in control, it can quickly become a nightmare if you are not.
Here are tips for setting up credit, managing it to your advantage and monitoring it.
The natural thing to do, if you have already established a good working relationship with a financial institution, is to use that institution to apply for credit. A secured credit card is a good first step toward expanding into credit. With the card, you can have money deposited automatically. As a rule, the amount of credit that will be offered by the company is equal to the amount you deposit. Keep up the payments regularly and you can convert to a regular, non-secured card.
A good way to ease into credit is to take out a personal loan for a large purchase, say a car, using a co-signer if necessary. Then you begin building a credit history. That history will be the foundation for more credit. It’s easy to feel too comfortable in the knowledge that you can get credit. Be responsible and stay out a trouble with missed or late payments.
You must be 18 to apply for a credit card. Until you reach 21, you will need a co-signer.
Some banks or other financial companies offer cards with a lower limit to help beginners to establish credit.
When you are ready to increase the amount of your credit, think about it carefully. The temptations to use the credit increase with the amount. Be certain you have paid your credit accounts on time for at least six months before looking at expanding.
Keep utilization low. Try to use no more than 50 percent of your available credit. If you max out your card, your debt to loan ratio (how much you owe over how much they will loan you) will be too high to get a good credit score. Having a larger credit reservoir will give you better credit scores. A credit lender looks at those figures when determining if you would be a good risk with more credit. Building loyalty to a particular lender by being responsible increases your chances for more credit, as well.
It is likely that credit will be a factor in your financial dealings throughout your life. You need to protect this asset by reviewing what is in the credit reports prepared by major reporting companies such as Equifax, Experian and TransUnion. The official site where you can get reports is www.annualcreditreport.com. They are required by law to provide you with one report annually free of charge. If you find anything amiss in the reports, deal with it immediately. Have the documentation you need to correct mistakes.
Monitoring your report won’t lower your credit score. Staggering the times at which you obtain a report from the major agencies makes the task less onerous.
Bottom line: do it. Keeping your credit history clean is an important element in your overall money management scheme.