Category Archives: Credit

How To Build a Solid Credit Score

How To Build a Solid Credit ScoreNo matter what stage of life you are in, a good credit score is essential. You never know when you are going to need a loan or have to make a credit purchase, whether it be for a car, a home, or education. Unless you have saved up a significant amount of cash, you’ll be out of luck without a decent credit rating. Fortunately, it doesn’t take much to build a great credit score. Just follow a few steps like the following to establish a solid credit rating with agencies like Experian, TransUnion, and Equifax.

Start Small

There is no need to apply for a $10,000 line of credit to start building an impressive financial reputation. Get a small credit card of perhaps $500 and load it from your regular income or savings to use as needed. Over time, the more you use the card and make timely payments, the better credit status you will earn. Some people think it is better to not use credit at all to establish a strong financial base, but that is a myth. You cannot earn a credit score without using credit. Just don’t overdo it.

Avoid Unnecessary Charges

Use your credit accounts to charge only what you really need. Of course, if you want to buy $2000 worth of new living room furniture and you are sure you can make payments on time, then go ahead. The goal is not to overextend your credit on unneeded transactions. When you use credit to buy tangible things that hold their value, like a bicycle, for example, you can generally sell it if you can’t keep up with charge account payments. But when paying for non-tangible items, especially frivolous expenses like entertainment, it can become easy to fall into the habit of charging things that you may not be able to afford. Not only that, but if you find it difficult to make the payment each month, you have nothing to sell to try and recoup part of that expense.

Keep Up with Credit Payments

Never skip a payment, except for an emergency. If you must be late due to unexpected circumstances, contact your creditors and let them know. Often they are willing to work with customers to allow them to miss a payment temporarily or make a partial payment. But taking those steps without discussing them with the creditor creates a bad impression and may lead to a negative credit score. Making your monthly payments on time is one of the best ways to establish and maintain a positive credit rating.

Limit your Credit Card Collection

Don’t be tempted by all the credit card offers that come through the mail. Using several credit cards simultaneously may lead to maxing out the available lines of credit and creating a burden for repayment. If you have a mortgage loan, a car loan, a student loan, and one or two credit cards, that may be enough for the time being. Review your financial circumstances and monthly budget periodically to ensure that you are balancing income with expenses without going overboard. You never want to be in bondage to your credit cards. Use them only to serve your interests in a valuable way that builds a positive credit score.

Easy credit often leads to overspending. Choose your credit card wisely, shopping for a low interest-rate with minimal to no transaction or maintenance fees. The same holds true for loans. Taking a responsible approach to the use of credit is the best way to build a positive credit score that will come in handy when you need it for big ticket or unavoidable purchases.

5 Financial Moves That Can Negatively Impact Your Credit Score

5 Financial Moves That Can Negatively Impact Your Credit ScoreBuilding a good credit score is important for financial success. You’ll need a strong credit rating to secure loans for long-term purchases like a car or a home. The majority of credit scores fall between 301 and 850 with the following ranking:

  • Excellent: 781-850
  • Good: 661-780
  • Fair: 601-660
  • Poor: 501-600
  • Bad: below 500

Although most people’s scores vary over time for many reasons, it is important to try and keep your credit score as high as possible so that when you need credit (to buy a home, for example), you’ll be able to get it at a reasonable rate. To protect your rating, avoid the five following financial activities:

Skipped Payments or Late Payments.

While it’s not unusual to miss an occasional payment, doing so consistently sends a bad message to prospective lenders who view your credit history. When deciding whether to give you new or additional credit, they will check to see if you keep up with current credit payments. Frequently missing payments or making routine late payments raises a red flag. If you must miss a payment or be late, contact the lender to explain why. Chances are any penalties may be waived, including a ding to your credit rating.

Overextended Credit

When exciting credit card offers overflow your mailbox, resist temptation to accept them all. Carefully review all offers’ fine print and compare them to get the best offer. Opening too many credit lines at the same time can make you appear vulnerable to overspending.

Cosigning a Loan

Your intentions are undoubtedly good when cosigning for a friend’s credit purchase. However, your own credit rating hinges on the other person’s ability or commitment to pay bills on time. When a slip-up occurs, you will be held financially responsible, and your credit rating may suffer as a result.

Switching Credit Cards Too Often

It’s hard to pass up a great credit offer, especially one with extended 0% interest and no balance transfer fee. But switching from one account to another too quickly can make you appear financially unstable. Potential creditors may wonder about your ability to actually pay off those transferred balances along with your willingness to make payments when the introductory interest rate expires. Each credit application impacts your credit score, so avoid doing it too often.

Not Reviewing Your Credit History Annually

Everyone should check their credit rating at least once a year by requesting a free credit history report from the three main credit bureaus: Experian, Equifax, and TransUnion. All the scores are slightly different, and they can be obtained for free (yes, really free) from

  • Experian uses the PLUS Score to explain credit scores, along with impact factors and ways to improve scores.
  • Equifax scores range between 280 and 850 to predict credit risks.
  • TransUnion’s TransRisk is a consumer credit score resembling the Fair Isaac Corporation (FICO) score, ranging between 300 and 850.

Organizations like Credit Karma offers free Web-based credit and financial management to American consumers. It offers free updated weekly credit scores and reports.

With a wealth of financial resources like these widely available, make time to review your financial standing by getting a copy of your credit score and ensuring all information is accurate and updated. Lenders will be ready to review your application favorably when you establish and maintain a strong credit rating.

Why You Should Raise Your Credit Limit

Why You Should Raise Your Credit LimitIncreasing your credit limit will provide you with the ability to spend beyond your means, right? Wrong! If you do it for this reason, you’ll almost certainly end up owning a lot of money. In the following sections, we’ll show you the right reasons for raising your credit limit.

It Increases Your Credit Score

This is perhaps the best benefit to raising your credit limit. One factor in your credit score is determined by comparing how much money you owe versus how much credit you have access to. For example, let’s pretend that you have a credit card with a $2,000 spending limit. You currently owe $200 on it. This means that your debt-to-credit ratio is $200-to-$2,000, which is pretty good. It’s when you start maxing out your credit cards that you start getting into trouble. If you owe more money than you have available on credit, then your credit score is going to drop – guaranteed.

It’s Easier to Get Loans and Additional Lines of Credit

This reason sort of piggybacks on the previous one: by increasing your credit limit responsibly (not overspending), you’ll be able to get loans and additional lines of credit much more easily. Are you trying to apply for a mortgage or car loan? Then this will be much easier when you’ve got a long line of unused credit under your belt. Again, if you live above your means and constantly max out your credit cards, it’s going to be extremely difficult to qualify for any additional lines of credit.

Perfect for Emergencies

Increasing your credit limit doesn’t mean that you should go on a spending spree. Responsible people increasing their credit limit so that they can remain protected in the unforeseen case of an emergency. For instance, let’s say that you’re traveling and you miss your flight back home. Having that extra line of credit will give you the flexibility to make arrangements so that you can still get to your final destination on time (and gives you enough funds to stay at a hotel if you need to). But again, these are emergencies – not “fun” spending.

It Increases Your Rewards

While conventional wisdom suggests not to spend a large portion of your credit on day-to-day expenses, you can make an exception for rewards-based credit cards. With these types of credit cards, they pay YOU for every x-amount of dollars that you spend within a specific timeframe. Instead of spending cash on certain purchases, you can pay with your credit card to earn rewards. So if you can increase your credit limit, you’ll essentially be earning more “points” per quarter, which eventually convert to spendable cash. Just make sure you pay off your balance in full each month!

Helps Avoid Dings On Your Credit Score

Let’s say that you’d like access to more credit. Should you A) Apply for a new credit card, or B) Increase your limit on an existing card? Expert recommends doing the latter. In accordance with FICO regulations, you may receive a slight “ding” for opening up a new line of credit, whereas you won’t run into any problems by increasing an existing a current line of credit.

The Bottom Line

The key thing to remember here is this: if your sole reason for raising your credit limit is to “buy more stuff,” then you’re already on a fast-track to financial trouble. Do the responsible thing and increase your line of credit for the reasons mentioned above, and you should be just fine.