Building Your Credit

 Building your Credit

Having access to credit lines and loans will only be possible if your credit score is at a healthy range. Credit scores range from 300 to 850 depending on the individuals credit history. The major contributing factors to credit score are the individuals length of history, loan debt ratio, amount of accounts you have open and the number of credit inquiries you have recently had in the past 24 months greatly impact your credit score.

The length of credit history will be determined by the first account you opened and still have active today. The longer you have had a credit card or loan open with on-time payments will increase your credit score and strengthen your credit portfolio. The loan ratio is the total amount of debt or balances you have compared to the total credit limits you have available to you. It is recommended to not use more than 30% of your credit limit if you are trying to increase your credit score and if you don’t want to see it drop. Having a loan ratio of more than 30% over long periods of time will weaken your credit portfolio.

Other factors that affect your credit portfolio are the recent credit inquiries on your portfolio. There are hard inquiries and soft inquiries, hard inquiries are usually recorded and reported on your credit portfolio when you apply for loans or credit cards. The amount of credit card accounts also determines your credit score and ability to get new loans, if you have many cards maxed out more than 30% on them you will not be offered more credit cards or loans.

1. Use or Lose your Credit & Increase your Credit Limit

In order to keep your credit score in good health you have to use your credit card. This is not an excuse to spend more money. Many of your necessary purchases in your budget, can be payed with your credit card. The goal here is to show activity and credit card usage, creating a bill and then paying it off before the due date of the bill. It doesn’t matter how much your bill is for and it can be just $10, the goal is to create a bill and pay it off before the due date. This creates credit history records of bills being paid on time on your credit profile.

If you have a credit card and you don’t use it your credit score will suffer. Non-activity over longer periods of time will make your credit profile look unattractive to creditors and lenders. 

Eventually after building up your credit for sometime you have some reputation and your credit score is at a healthy level. At this time you can contact your credit card company and let them know you are looking for credit limit increase. Let them know that you plan on making a big purchase such as a new TV or appliance or plan on starting a business and you will use your credit card to make the necessary purchases. They will ask you a few personal questions for the credit limit increase request which include information about your assets and your income mostly. Depending on your answers and credit profile you will either be approved or denied. This process includes a hard inquiry on your credit profile so don’t do this too often. Rather time it as a yearly or wait about six months to improve your credit portfolio some more. The credit card companies need to see that you have used your credit responsibly for your increased limit request to be approved.

2)Automatic Payments for Bills & Utilities- No late payments

A great way to keep using your credit card without making extra unnecessary expenses is to use your credit card to pay utilities or to pay for necessities only. Instead of paying for groceries or utilities with your debit card, you can pay it with your credit card.

One of the benefits of paying your bills on credit card is it gives you additional time to pay your bills. For example if you get your phone bill and have 30 days to pay it and you pay it on day 29 with your credit card, now you have another 30 days to pay your credit card balance. Just be careful to not be late for either of the payments because you will incur extra interest and fees for late payments. You will also incur a late payment record on your credit profile which is one of the worst.

In order to make sure you don’t incur late fees you can set up automatic payments for your bills to a credit card. Many utility companies let you set this auto pay service by contacting the customer support number or through the online portal. The benefit of doing this is to make sure you never forget to pay your bill, payments would be made automatically.

Make sure to continue monitoring your invoices and make sure the automatic payments go through successfully. It is also a good habit to confirm the amounts of the bills to be accurate. You can easily forget to confirm the expenses because everything is happening by itself as you swipe your card everyday. Monitoring your expenses should be more organized on your credit card statements rather than paying things cash and losing track of change. You will be able to record your expenses and also be building your credit as you use.

3) Using Financing, Low Cost Financing 0% Loans from Retailers and Credit Cards

Using financing when you purchase big ticket items such as furniture, a new TV, appliances and electronics can help break down the payment into smaller monthly amounts that you can pay off in the near future. Many retailers nowadays offer 0% financing over a year or three on certain products you buy from them. If you need one of these items and it would absolutely help to improve your quality of life, help you save time and if you need it rather than want the item it is safe to use financing rather than paying cash.

Don’t buy anything with your credit card or use financing to buy items you can’t afford. Only use financing as a way to conserve your cash, so if you don’t have the cash to buy the new TV or cell phone, just don’t buy it. I understand buying things using financing involves purchase items you don’t have the money for but this is truly insane because using financing to buy things you don’t have money for you will trap yourself into making payments and you are essentially committing to something you might fail to commit to. 

Life is unexpected so you don’t know if you will continue to have your income to pay that $1000 balance a few months down the road. Not being able to pay that payment will lead you to incur late fees and extra interest. So only finance items you have the cash to pay off at any time, store the cash in your savings account or checking account. You could even use the cash to spend on investments however this is risky depending on the place you invest your money because that money might not be easily Liquidable or accessible if you need it to pay bills.

4) Monitor your Credit Reports, Expenses and Budget

Building your credit will take some time and to maintain your credit score will be an ongoing process. Being disciplined to only use your credit for necessary purchases and items that are in your budget which you can afford is responsible. Before you buy the new phone, have the cash set aside and take advantage of credit and financing. Building this disciplined habit will prevent unnecessary expenses from your life. You will begin to see your assets grow and liabilities reduced. If you save your cash and use your credit, you are increasing your assets and liabilities which balance out. Rather than buying items you don’t have the cash for and now you are in the negative.

In order to continue building your credit and maintaining a great credit score continue to reduce your expenses by reviewing your net worth and the income. Always review your expenses with your budgets because you will find places you can save money on by implementing changes in your life. Your budget today might not be the same six months from now so spend a day in the month reviewing. instead of making this tedious and annoying process, make it a vital opportunity with your family members or loved ones. Use it as a time to educate your family about finances and give them more understanding about the families goals. Finances can be made fun and made into a group effort, a team building activity with your loved ones.