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Building Good Credit
The basics of building good credit start with
having three
open trade lines, with twelve months of good payment history. For
example, get three credit cards, even secured credit cards, and use them
responsibly for a year. Charge only small purchases, such as your groceries and
gas for your car, and always, always, always pay on time, every time, and in
full if you can manage. Do not foolishly fall back into a poor credit situation
after all of the hard work just to get to this point.
Another way to get some good credit history
is by getting and paying a loan. Borrow $10,000 from your bank to use for a
$10,000 certificate of deposit (CD). You pledge the CD as collateral for the
loan, and they hold the CD for safe keeping. Of course, there is some expense to
you involved, you will have to pay a small spread on the loan. For example, if
the CD pays 4% and the loan is at 8%, so your cost is 4%. You may be able to
arrange to have the CD interest paid automatically against the loan payment,
with the rest deducted from your checking account, with the final balance of the
loan due when the CD matures. Make sure to pay the loan monthly, to create a pay
history on the loan. Also, make sure that your bank agrees to report the loan to
the credit bureaus, and request that it be listed "secured" and not "secured by
CD". This is just an example, and should work with any amount of money. Of
course, keep in mind that the larger the loan, the greater the loan costs in
interest.
Your credit rating will automatically begin
to improve with good payment history.
