These days it is important to establish credit and to keep it good standing. Whether you are looking to buy a house, a car or really make any major purchase, you will need to have established credit.
Having established credit can be a major benefit enabling you to get better interest rates on purchases as well as more credit when you need it.
Significance
In order to establish credit, you need to open up a line of credit. If you have never had any type of credit before, you may be required to get a co-signer the first few times. This ensures the bank or lender that they will get paid and is also helps to keep your interest rate down. Finding a co-signer is not an easy task for some people. It needs to be someone who has complete trust in you and you must do your very best not to miss a payment because you can hurt their credit as well.
Considerations
The first few payments are the most crucial as this is what will begin to establish your credit history. Once you have opened a line of credit, it is imperative to never miss a payment. As you continue to make payments on time, your ability to get credit more easily grows because now you will have a record (credit report) of having made payments.
Warning
Many people begin to establish credit and start applying for every offer that they receive. This is actually detrimental to your credit. Even though you may now be getting numerous credit offers, it is important not to open too many accounts. You do not want to end up in a situation where your entire paycheck goes to paying your credit bills.
You want to make sure your debt-to-income ratio stays as low as possible to help establish your credit further. This is a very important factor creditors look at before extending credit and is as simple as how much you make compared to how much you owe per month.
Effects
Maintaining and improving your credit means that you should try to pay as much as possible towards your debts each month. Paying an extra 20 to 30% each month will drastically reduce your payback time and the money spent on interest. It is also an excellent idea to choose one or two cards and completely pay them off each month. Not only will you not be paying interest, but you will be helping to further establish your credit.
Theories/Speculation
It can take years to build up a great credit profile yet only a few late payments can seriously affect your ability to finance anything. Take your credit seriously and do what you can to always pay on time while keeping your debts to a minimum.
Potential
Over time, you will find that with on-time payments and by maintaining a low debt-to- income ratio, getting the credit you need can prove to be very easy. You will be able to finance house by obtaining a mortgage. You can drive that new car with 0% APR because you have made on-time payments. Your credit report essentially will serve as a testimonial to your ability to pay back anything that someone is willing to finance for you.
Expert Insight
One of the best things that you can do when establishing credit is to continually watch your credit report. By doing so, you can make certain that everything is being properly reported by your creditors and you can watch your credit build.
Monitoring your credit report may also help to prevent identity theft as you will be able to see anything that looks out of the ordinary.
There are three agencies that report and maintain credit files on you.These are Equifax, Transunion and Experian. You are entitled to at least one free credit report each year. Also depending on what state you live in, you may be able to obtain two free credit reports each year. It is to your advantage to request your credit report on at least an annual basi s to simply check its accuracy.
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