Building credit is not an overnight task as it builds slowly over time. Getting a loan, mortgage, or lease requires you to have a good credit score, highlighting that you have behaved financially responsibly in the past. Good credit reduces risk because you are more likely to make your payments on time. Students and young individuals who will start building a credit history must make smart decisions to ensure a safe future. Doing things right from the start has its advantages, and maintaining a good credit score is no exception.
Anyone in your family who has a good credit history can help you start the credit journey imperiously. Opening up a loan account with a cosigner who has a good credit history is a great way to kick-start the process. The cosigner guarantees the payment in case you are unable to make it and should be someone who trusts you. The credit score of a cosigner can suffer if you are unable to pay, so all terms must be cleared out to protect both parties before taking this option.
A Starter Credit Card
A starter credit card is specifically built for people who are starting their financial journey and usually have lower credit limits of up to $300 – $500. However, interest rates are significantly higher compared to mature credit cards. Student credit cards allow you to gradually build up your credit and upgrade your cards when you build some credit. People with a little bit of credit history can opt for capital one credit cards with a high approval rate among starters. These cards come with no annual fees and offer better rewards if you keep a good history of building credit.
Watch your Credit Card Balances
Another significant factor in measuring your credit score’s worthiness is how much revolving credit you have versus how much you’re using. The percentage should be on the smaller side for a better credit rating, and often the optimum percentage is 30% or below. Paying off your balances and keeping them low will ensure that this percentage stays down. Consolidating your credit card balances with a loan can also help you score valuable credit points. Building credit with credit card issuers that accept multiple payments throughout the month should be your priority at all times.
Leave Old Debts on the Credit Report
There is a general perception that having debt on your credit report is a bad sign and that you should hurry to get it removed as soon as you pay off the loan. While it is true that negative items affect your credit score for worse and generally stay on your report for almost seven years, getting them removed might not be such a bright idea. If you have paid off the debt, you have converted it into good debt, which is good for building a credit score. Keeping the old accounts that you have a history of paying open is also recommended by credit building experts. Therefore, never try to get rid of old debts that have been paid off.