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Live and Learn

Personal finance topics with a real world touch... 
and puns, because they make everything more amusing.

Build me up, buttercup

So, we know we need good credit, but how do we get there? As we learned, there's your credit history and your credit score. One is pretty straight forward, the other is less so.

To build your credit history, you need to show a pattern of responsible borrowing. The first step would be to get rid of debts. Then show good habits, which could be with a loan that you pay off on time or credit card (even a secured credit card which requires an upfront, refundable security deposit that equals your credit limit. If you can't repay what you owe, the lender can take your deposit.) Any credit you get, make sure to pay your bills on time. Missed payments, even just one, will show on your credit history.

Since there are a few companies that generate credit scores and they don't publicize their methods, it's tough to say exactly how your score is calculated. But there are some general tips that will help. To improve your credit score:

  • Make sure to use only 10% or less of the credit you have available to you. (That means if your card limit is $2000, you would only use $200 each month, making sure to pay off the whole balance when it's due.)

  • Pay your bills on time. Even two missed payments can decrease your score about 50-100 points.

  • Don't open up too many accounts, especially if you are trying to get approved for credit. If you do that, you increase the amount you might possibly spend on credit, and the next lender isn't going to be too happy to give you even more.

  • Think twice before closing old accounts. If you have an old account, it may be what is marking the first time you had credit available to you. Lenders like to see a long history. There is no way to get history back. I was irked when an old card from college closed itself because I hadn't used it in so long. It wiped out several years of my credit history and since then I get (slightly) dinged on my score for not having a long enough credit history. BUT-- if you are paying an annual fee, or can't control your credit card spending, you may want to consider closing the card to protect your overall credit.

Does this make your head spin?

Financial Coaching may be right for you.  I can help you sort out your money and get you heading down a path towards joy.  What are you waiting for?  I'm here.

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