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Did you know that nearly 30% of the population has what is considered poor credit? A low credit score can significantly impede your ability to get loans, mortgages, or low-interest rates.
But what if you don’t have any credit to start with? Whether you’re entering into adulthood or just now looking for the best ways to build credit, we can help.
Building credit isn’t just about being responsible with money. Some people think if they pay for everything in cash and never borrow money, they’ll have an amazing credit score. However, as the name suggests, building credit requires using credit (i.e. borrowing money).
Keep reading for our top five tips on the best ways to create and maintain good credit.
To build credit, you have to prove that you can handle the responsibility of borrowing money and paying back what you owe. However, you must borrow responsibly.
Before taking out a loan, make sure you can afford the monthly payments. As a person with little or no credit, your interest rates may be a little high. However, as long as you make more than the minimum monthly payments, the loan should be paid off quickly and without excessive interest fees.
You should also make sure the loan can be refinanced. Refinancing the loan can grant you lower interest rates in the future.
Pay Your Bills On Time
Learning how to increase your credit score means paying your bills on time. Whether it’s credit card bills, loan payments, rent, or utilities, if you fail to make payments, your credit will plummet.
Proving credit trustworthiness requires responsibility and dependability. You need to show that you can be trusted to make all of your payments on time. This shows that you can manage your finances and not bite off more than you can chew.
Use Credit Cards Methodically
There’s nothing wrong with credit cards, especially if you’re looking for the best ways to build credit. However, many people get in over their heads by charging more than they can afford to pay off in a reasonable amount of time.
The longer those charges stay on your card, the more interest you’ll have to pay. We recommend using a rewards card to pay for day to day expenses (groceries, gas, bills, etc.). However, only charge your card with expenses you can pay off within a couple of weeks.
Reduce Your Debt to Income Ratio
One of the most important tips for building credit is keeping your debt to income ratio as low as possible. Nearly 60% of Americans live paycheck to paycheck. That means the majority of us are one financial emergency away from falling behind.
You can build good credit by keeping your monthly costs (bills and debts) well below your income. This shows that you know how to live within or below your means. Far too many people use loans and credit to live above their means, creating a vicious cycle of indebtedness.
Use a Co-Signer
Finally, one of the best ways to build credit is by getting a loan that may be above your paygrade. You can do this by using a co-signer. This needs to be someone you can trust, such as a parent, grandparent, or spouse.
This can also be beneficial for consolidating your debt. You may be wondering “Will debt consolidation affect my credit score? The answer is yes.
If you have a lot of debt already, consolidating it under one loan with a lower interest rate will be beneficial to both your wallet and your credit score.
Looking for More Tips on the Best Ways to Build Credit?
Building your credit can take time, but it doesn’t have to be difficult. If you’re looking for more valuable financial information, you’re in the right place. Take a look at some of our other articles for more tips on the best ways to build credit, save for big expenditures, reduce your spending, increase your income, and more.