Build Your Credit | Best Polk County Realtor
Having Good Credit Will Help You Get the Best Loans Possible! Here Are Some Credit Building Tips!
When it comes to major financial purchases in our lives, most of us don’t have the ability to pay in full. These are things like a car or a house. It might even be things like a new refrigerator, or washer/dryer set. The reality is, in this day and age, many of us just don’t have extra cash laying around to spend on things.
This is where having good credit comes into play. When we need to borrow money for a major purchase, such as a car or a house, most of us will need to get a loan. Of course, that loan comes with interest, which means if we need to “borrow” $250,000 to buy a house, we will actually end up spending more than $250,000 when it is all paid back, because of that interest. This is just the cost we have to take on in order to borrow the money we need.
Of course, what can end up saving us thousands of dollars in the end is having a lower interest rate. How do we get a lower interest rate? With “good” credit!
How Do I Get “Good” Credit?
For the purpose of this article, we will pretend that you are just starting out in building your credit. You don’t have significant credit history or outstanding late payments on things. If you are already behind the ball when it comes to your credit and credit history, or already have substantial outstanding debts and loans, then we absolutely recommend that you meet with a credit counselor. They can help you figure out how to best pay back those debts and get you back on track to rebuilding your credit.
Before we dive into some of our favorite credit building tips, you have to remember that the #1 way to build your credit is to make your payments ON TIME, every month. Above any other tip, that is the most important one. Now, here are our other top tips for understanding and building your credit!
It Takes a Long Time to Build, but Takes No Time at All to Ruin
Having a credit history is an important component of your credit score. You need to demonstrate the ability to responsibly have credit available, over time. The longer you manage your credit properly, the more it helps your score. There is no way around the “time” factor unfortunately. What that means is that when you are young, and just starting out with credit, you will not have a credit history that demonstrates your ability to manage debt. You will not have big credit lines available, and you won’t have the best interest rates.
The real issue here is that as long as it takes to build a good credit history, which is years, it can be ruined with just one bad mistake. A simple late payment can drop your score 100 points!! A payment is considered “late” once it is 30 days PAST the due date. The more late you are, the more it will hurt your credit score. On top of the score hit, the late mark will stay in your credit report for 7.5 years! So while you will be able to bring your score back up in that time, your ability to get the best loans and rates will always be negatively effected by that one negative mark.
For an optimal credit score, you should maintain about 2-3 lines of credit. Essentially, this shows your ability to responsibly manage multiple loans, make payments on time, and not over extend yourself. 2-3 lines of credit is considered the “sweet spot” by many credit experts. One line is not enough to demonstrate your money management skills. Too many lines is a red flag to lenders.
Additionally, for the best score possible, you want to maintain those lines of credit at 50% or less the total available credit. That means whatever amount of credit you have available, just pretend you actually only have HALF available, and don’t go over that!
By “maintain”, we mean that you have to actually use your credit cards too. Having an open line of credit with a zero balance, that you have not touched in years, does not help your credit score very much. Sure, it establishes credit history, but remember that creditors want to see that you are able to manage a loan responsibly.
CREDIT BUILDING TIP:
Use your credit cards like cash so that you don’t end up over extended. In other words, don’t use credit cards to buy something you can’t afford outright. One great way to do this is to designate a credit card for something like gas. Gas for your car is a regular expense that is usually not too high at any single point. You typically have the cash to pay for gas, but instead, use a credit card to fill up your tank, and then set the cash aside to pay it off in full every 2 weeks or every month. Not only will this look good for your credit, it will also help you avoid finance charges.
The extra bonus here is that many credit card companies offer rewards or cash back for using them at places like gas stations. So on top of building your credit, you may actually get money back every month! Win-win!
Be Careful with Student and Auto Loans
These are usually pretty high balance loans that are fairly easy to get, even without great credit scores. Of course there is a trade off. You may have a high interest rate for the loan. Additionally, these types of loans don’t do a lot to increase your credit score, even with on time monthly payments. However, one late payment will dump your score right away! These types of loans typically don’t reflect positively for you until after the loan is paid off (which is usually years later). So, while most of us need a loan for stuff like cars and schooling, just be aware of how they effect your credit score.
Buying a Home Starts With Good Credit
If you are just starting out building your credit then use these tips to help your score. Of course, the number one thing to help your credit score is to make your payments on time. However, these other tips are often overlooked or not considered, and can be the difference between a “fair” credit score and a “good” credit score. The money you will save by having a lower interest rate on your home, or even your car, adds up to significant amounts over the course of the loan.
Don’t forget that you can get your FREE credit report from services like Credit Karma and FTC.GOV.
If you are looking to move into the beautiful Polk County Florida area, then CONTACT DRJ REAL ESTATE right now to put us to work for you! We are Polk County’s premier, full service real estate team that specializes in Polk County and Lakeland real estate.
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Build Your Credit | Best Polk County Realtor