Establishing good credit is not necessarily difficult, but it is extremely important. With good credit, there are so many options that will be available to you when it comes to purchasing; however, if your credit is not good, then these options will be limited. It is important to begin establishing good credit at a young age; therefore, it will not be as difficult when you get older. Even if your credit is not great right now, you can be on the road to establishing good credit by following these four simple steps.
Get a Credit Card
The first thing you need to do when it comes to establishing good credit is to get a credit card. A credit card is known as a revolving line of credit, which means the minimum payment may be different each month. Also, a credit card can have a small limit or a large limit. If you are new to credit cards or if your credit has not been great in the past, the credit card company will probably grant you a small limit initially. As you continue to improve in your credit responsibility, this limit will probably be increased.
Pay Bills on Time
After you get your credit card, it is of utmost importance that you pay your bills on time. Being late with your payment is the worst thing you can do when you are trying to establish good credit. On-time payments is the single most important factor to having a good credit score. Even if you cannot pay a large amount on the credit card, you should aim to pay at least the minimum payment.
Keep Balances Low
Although paying your bills on time is the single most important factor to having good credit, keeping your balances low is the second most important factor. Regardless of what your credit limit is, you should keep the balance below 10 percent of the credit limit. If you have a credit limit of $500 and your balance is $50 or less, then you will a good debt to credit ratio. However, if you have a limit of $10,000 and your balance is $9,000, then your credit score will be negatively impacted.
Do not apply for Too Many Lines of Credit
After you have received a credit card, you should not apply for too many lines of credit. As you apply for additional lines of credit, your credit score will decrease. Additionally, if you are approved for more lines of credit, then you increase your chances of developing high balances.
Good credit is a must, and it is not difficult to obtain. If you start establishing good credit at a young age, then it will be much easier to maintain in your later adult life.