It is possible for you to build up a good credit score by responsible use of the credit card.
In fact credit cards are the easiest and simplest way to build up a good credit history and a good credit score. All you have to do is use a credit card responsibly and he do not even have use many credit cards to do it. Just using one or two credit card to make the purchase is that you can afford to pay back at the end of the month can build up a good credit history for you.
The trick of building a good credit history with the help of credit card lies in not getting yourself burdened with debt that you cannot repay. The use of credit cards should not feel like a financial strain on you every month. Use a credit moderately to buy what you can ideally afford to pay back in full at the end of every month without having to rotate the balance to another month. Even if you do have rotate the balance make sure it is not a very large amount that will force you to be under debt for a very long time. Although if you continue to make the payment on your credit card your credit history will only benefit but charging a very large amount may raise your credit utilisation which could be harmful to your credit score. It could also prove to be a financial burden and a strain which totally takes away from the advantages that a credit card is supposed to bring, one of which is financial freedom.
If you’re going to be using a credit card to make expenses for things that you want then make sure that you calculate your discretionary income. Discretionary income is income that you can afford to spend on nonessentials after you have used a part of your income to pay for the essential services and goods like paying bills, groceries and other financial needs.
As mentioned before you should always keep the credit utilisation ratio on the credit card low. Try and utilize not more than 30% of the credit limit available on the credit card individually and so on all your credit cards jointly.
The way that you can limit the usage of your credit card is by making sure the to pay off old balances on your credit card first before considering making your expenses and by creating our savings or emergency fund as a blanket for one predicted financial needs so that you don’t have to rely on the credit card when the need for extra cash arises.
Can you buy better credit rating? The answer to this question would have been yes till sometime back but now it’s no. You cannot buy a better credit rating. But why was it possible to do just that sometime back? Read on.
Sometime back they used a practice in vogue called piggybacking that allowed people to change their credit rating from bad to good at taking advantage of the good credit rating of another person. Since a low credit score has many damaging effects on the financial well-being of person people have tried and used all kinds of means and loopholes in the system to find a shortcut to increasing their credit rating. People looking for credit cards and loans can find themselves in a situation where they are faced with denial or high interest rates due to a low credit score. One of the loopholes that people thought they had found was this very practice of piggybacking. Why it’s called so is because it is a practice by which a person develops a person credit rating by riding on the cost of credit history of another person without insults having done anything to deserve it.
The so-called credit repair companies used to charge a fee ranging from a few hundred to a few thousand dollars for the purpose of adding the person with a poor credit rating as an authorized user and someone else’s credit account whose credit rating was good. Once the account was added on to as an authorized user the account with a personal history was also reported on the credit report of the person. This enhanced the credit score of the person with the poorer credit rating without him having done anything different. By adding more than one and multiple authorized users on to his credit report they could boost their credit score dramatically. This innocence was a practice that was dishonest and misleading. It was essentially a process of passing off someone else’s good credit as your own and misleading the creditors and the lenders. The credit scoring system is in place to give the creditors and lenders a method by which they can judge the creditworthiness of a person and make sound lending decisions.
However this method of buying better credit rating is no longer possible as most of the credit scoring models have not stopped answering authorized users in the calculation of the credit score.
Whenever you find You have to establish new credit it can be a catch 22 situation. If the reason for new credit is the fact that you have never had credit before the you are likely to be faced with problems owing to the fact that you do not have credit history. In a situation where you are trying to establish fresh credit in order to rejuvenate a bad credit situation creditors may be unwilling to deal with you owing to the negative information present on your credit report.
However, as a means to establish credit you can provide information other than your credit reports that may convince the creditor to approve of your application. Lenders are basically looking for a way to establish the facts that you are able to undertake new debt and will be able and willing to make the payment on your loan. You can help the lenders look into other factors that will help establish your credibility and risk worthiness.
Using your Bank balance in the absence of a credit history — you can provide the lender with a statement of your bank account that shows a reasonable amount of balance and transaction. This will ensure the lender of the fact that you have the money to pay off your monthly credit card bills.
using your Employment history to prove income source and stability — employment is a large factor concerning the security of the consumer. If a person can show that he has a steady and regular job that provides a steady income then the lender will feel much more comfortable in extending credit.
using your Residence details to prove stability— same as the employment history of the individual having stability in prisons also improves the chances for consumer in getting his credit application approved for the first time. The lender will look into information such as how often you shift residence, whether you rent or all home. Owning a home will also add weightage to your credit application.
using your Bill payment history to show promise of regular payment in the future — even though you do not have a credit history you can show payments that you make every month towards other kinds of bidders such as utility bills, mobile phones, cable television etc. Showing a regular pattern of payment may help convince the lender that you are regular with your bill payments and give a better chance of being approved for credit.
Credit cards are great if you are trying to build your credit history from the scratch or trying to re-build it after you have had mishaps with your credit report. Credit cards are great for the simple reason that they are the easiest form of credit that you get and you can completely control how much you spend. It is in your hands how to manage credit and if you do it right, you can build a good credit history using just one credit card. An important thing to remember before we get in to this subject further is that the number of credit cards you have will not necessarily affect the credit score. You can use 1 or 4 credit cards, but what makes the difference is how you use the cards. The only advantage that will come from having more than credit card is that your balance to limit ratio will decrease which is good for the credit report. Here is what you do to build a good credit report with your credit card:
· Make the payment in full every month – this demonstrates to the lender as well as the credit scoring models that you are in control of the debt and that you are charging what you can afford to pay back.
· When you can’t pay in full, pay the minimum amount due – under no circumstances should you have a payment reported as late. If you cannot pay the entire amount, pay the minimum due. This is not generally recommended as getting into the habit of paying minimums is an excellent way to get yourself in an ever mounting credit card debt. But it is still preferable to not making a payment at all resulting in a late payment reported to the credit bureaus.
· Start with just one credit card – first of all apply and start with one credit card. You do not want the first thing to go on your credit report is multiple credit enquiries. They damage the credit score to a certain extent and do not look good to the lenders who might feel that you are going overboard in trying to get credit. This represents a risk that you might get yourself under a lot of debt.
· Handle the balances well – it is not a fixed rule that you should not carry balances on your credit card. But always make more than the minimum payment or else you will never some close to paying off your loan. If you can balance the interest that you will pay by rotating the balance with the convenience of paying smaller installments every month, then sometimes rotating the balance can work well in your favor.
To start off, make small purchases on your card that you will pay off in full at the end of the month. Using a credit card has several conveniences. Start by paying some utility bills. Another important thing to remember is that the balance on your credit card should be below the 30% of the credit limit. Definitely keep it below the 50% mark. I know that this may sound unreasonable. But the fact is that if you are trying to build a credit history on the basis of your credit card, then it is most beneficial to your credit score to keep the debt utilization below 30%. The way to increase this is by either asking the lender to increase your credit limit or applying for another credit card. Since you are beginning to use credit, the advice for beginners is to stay below 30%.
Keep the following points in mind:
· Do not make purchases on your credit card that you will not be able to pay off in full at the end of the month.
· Put the money for the credit card bill separately and do not touch it for any other expense.
· Make more than one payment on your card if you are crossing the 30% limit. Some people make the payment as soon as they have made the purchase or within a few days. If your credit card offers you the ability to check your balance and pay online then you can take advantage of this feature.
· Don’t have multiple cards if you cannot avoid the temptation to use them. Only have the cards that you need and the ones that offer you the features that you desire. Do not start using every pre-approved card that you find in your mail.
· If you cannot meet the payment in any month due to some unforeseen expense, always make the minimum payment at least. Do not, under circumstance, be reported late to the credit bureau. A late payment will stay on for 7 years and cause damage to your credit score.
It is important for a person to start thinking about their credit history right from the time that they are in college. As a college student, you are going to go out into the real world soon and realize the importance of having good credit.
Some of the very first things that you will need when you are straight out of college such as a car, a rental apartment and a job will all depend on having a good credit history. Even utility services check your credit report and your credit score in order to activate these basic essential services to you. Not having a good enough credit score result in you having to pay large deposits before you can get services like cable and telephone.
Not only should you work on building a credit history when still a student in college but also avoid negative and derogative information from finding its way on your credit report.
A credit report has a large impact on a large number of facets of one’s life. Not only is it a great burden to be under debt while still in college but having negative information on your credit report even before you have begun your career can make things very difficult for you. A bad credit report can result in problems when you seek housing on rental. The same problems can arise when you apply for a much required loan. Both these situations can require you to have a cosigner before your application is approved.
Employers view the credit history of the potential employers as the belief that good credit behavior shows responsibility as well as a debt free employee is liable to perform better at work owing to lesser stress in the financial aspect of his life.
Certain jobs that involves money handling, such as in banks, do not hire having people who seem to be under debt so as to avoid the risk of potential temptation on the part of the employee to steal money.
PRBC stands for Payment Reporting Builds Credit.
There is a new system in place that helps people who have no or relatively new credit history to establish their credit risk worthiness with creditors. It is called the PRBC. The PRBC works differently from the credit bureaus. You can report your own payment information on various bills and utility services and have the agency verify it for you. They charge a fee for verifying the information that you provide which is $20 for rental history verification and $15 for other accounts. Based on this information the agency creates a report for you. The report can only be viewed by lenders after your permission.
PRBC has also tied up with FICO scores to make a score that is close to what a typical FICO score looks like. This score is called FICO Expansion Score and it ranges from 300 to 850. A person who pays their bills on time gets a higher score. This score is very similar to the FICO score that is calculated based on the credit history of a person. It is not yet available to the consumers but the lenders can request and see it.
The idea is that by recording the payment history of consumer for things like utilities, cable, mobile phones etc. they establish a credibly and risk worthiness of the individual which can be used by people who do not otherwise have adequate credit history to qualify for loans and credit cards.
You can also use the online bill payment facility offered by the PRBC to have your payments automatically recorded and updated by the system.
Secured credit cards or an alternative to conventional credit cards when trying to rebuild your credit history. You should be careful about not mistaking secured credit card with a prepaid credit card. While both are quite similar in functioning and nature the key difference is that a secured credit card is reported to the credit bureaus wise a prepaid card is typically not. Owing to a poor credit history lenders may be unwilling to approve you for a conventional credit card. However, certain lenders are willing to work with consumers with a poor credit rating by offering them a secured credit card. This kind of a card requires you to make the security deposit based upon which your credit limit on the card is decided. The limit on this kind of card is typically 50% to 100% of the security deposit that you make. Since these cannot cards typically get used by people with a poor credit rating they have certain fees and charges that are not associated with a conventional credit card such as application fee, processing fee and annual fee. You should pay due attention to the charges and the fee structure to ensure that you can afford to pay them. Also if these charges are deducted from your deposit then they can drastically reduce your credit limit.
First things first make sure that the lender reports the secured credit card repayment history to all the three credit bureaus. If not to all three then at least one of the National credit bureaus. This will ensure that your payment history gets reported on your credit report and improves your credit score with time and judicious usage.
The second way a secured credit card can build your credit is by getting your foot inside the door for qualifying for conventional credit. If the lender was initially uncertain of extending you a conventional credit card owing to your bad risk, demonstrating responsible and timely repayment schedule can convince them to approve you for a conventional credit card. A conventional credit card is the easiest and commonest way of building up a credit history. Hence, you can take advantage of the secured credit card initially to work your way to getting a conventional credit card. Keep in mind that the purpose of getting a credit card at this point of time is to build your credit history. Do not use or abuse the card carelessly. Keep the balance is low and pay them down every month in full.
Change Bad Credit to a Good One
Once you are done with the stage of fixing the negative data on your credit report, you come to the stage where you need to rebuild your credit. In order to go who from a bad credit rating to a better one you will need to start reusing credit in a manner that will build a good credit rating to you. Just getting rid of negative information on your credit report may not be sufficient to get you approved for credit offers and better interest rates. Before lenders start viewing you as a favorable credit risk you will have to rebuild your credit rating. This process can be started by getting new credit.
Get A New Credit Card
Since your credit rating is still suffering from the repercussions of past credit behavior you may find it difficult to get approved for new credit card and loans. There are however lenders who are more willing to work with consumers with a bad credit rating as well as an offers and schemes that are meant to work people with insufficient credit history. The come on examples of credit cards that can be got in spite of a compromised credit rating :
- Retail credit cards or Gas Credit Cards
- Secured Credit Cards
There are a few things that you must keep in mind while going in for any of the above offers. First of all secured credit card does not mean a prepaid credit card. A prepaid card should be avoided if possible because the payment history on these kind of cards is not reported to the credit bureau. Using a prepaid credit card will not help your credit rating directly but may benefit you indirectly. Using a prepaid card judiciously might encourage the lender to upgrade your card to a conventional credit card using which you will be able to have positive data reported to the credit bureaus. Secondly you must be careful about choosing credit cards from lenders that deal with people with bad consumer credit history. These cards are typically high interest and high financial charges credit cards. Any late payment or a revolving balance may get you write back under debt. Many such providers target people with bad credit in order to make a quick profit at the expense of the consumer’s poor financial plight. You must also be careful about not making too many credit applications in a short amount of time. While enquiries to not affect the credit score of a person who has a healthy credit score, for a person who score is marginal it might further dip the score beyond the threshold point of lenders.
Changing Credit Behavior
As important as it is to get new credit in order to start building your credit it is equally important to change your credit behavior in to ensure that you do not repeat the same mistakes from the past. Changing your credit behavior and replacing that credit habits with good ones will ensure that your credit rating continued to grow in the future. While starting off to build a new credit might be slow it is only by demonstrating to your lenders that you can now handle credit responsibly that you can hasten the process. As your history, response to credit management grows so of the trust of the lenders. Healthy credit management practices will also reflect from your credit report. Gradually you will find that with time more credit is available to you which you can utilize to further strengthen your credit history.
The color of a credit card has absolutely no difference in the way it affects your credit rating. Being offered a gold credit card or a platinum credit card is a privilege that your bank may give you for having displayed reliable and responsible credit behavior in the past.
Being a good customer to the credit company will help you on certain privileges such as gold or a platinum credit card. While these cards usually have higher credit limits, lower interest rate and offer additional privileges such as airline miles, cash rewards, incentives, cashback offers, 0% fuel surcharge and better customer service the effect on your credit report and credit score will be the same as when using a normal credit card.
The only difference is that having a platinum or gold credit card can make to your credit score is the enhanced credit limit. If you charge the same amount of money to a normal credit card with a lower credit limit and to a platinum credit card that has a higher credit limit your debt utilization ratio will be lower in the case of the platinum credit card owing to the higher credit limit. In this manner a platinum credit card use which can seem more favorable to the credit score. In order to read more about how debt utilization of the balance to limit ratio works in achieving a better credit score read the previous reports.