Whether we like it or not credit is an integral part of our society. If you want to succeed financially, you need to have a strong credit score and credit history so that you can get the credit you want and need. Below are some very simple credit rules that will help you qualify for mortgages, car loans, and other lines of credit:
Stay In the Credit Game
Many people who have struggled with debt, especially those exiting bankruptcy, mistakenly believe that avoiding credit is the best path to financial health. However, since many important purchases require some form of credit, avoiding credit completely can be costly. To stay in the credit game, try to have a few different lines of credit such as revolving credit (e.g., credit cards) and installment loans (e.g., car loans, personal loans) which are a good start.
If you don’t have any credit or if your credit score is very low, you can apply for a secured credit card or a store credit card quite easily. This is often an effective way to begin establishing your credit even if you’re just coming out of bankruptcy.
Don’t “Pig Out” On Credit
If you’re new to credit, receiving a credit card with a credit line of few hundred dollars or more can feel like “free” money. Unfortunately, perceiving your credit as free money is inaccurate as it is more like a loan by the credit card provider that you must repay. And if you spend too much and over utilize your credit that can be dangerous if you’re trying to improve your credit score because part of your score is calculated by looking at what percentage of your existing credit you are utilizing. For example, if you have a credit card with $1,000 limit and you charge $100, you’re utilizing 10% of your credit line, This is low (and good) utilization of your credit. Anything over 30% utilization can begin to drag down your credit score. Remember, the lower the utilization, the better.
Pay On Time and In Full
While each credit card will have a minimum payment amount you’re required to pay, paying off your credit card in full each month is the best route. By paying off your credit card you keep your credit utilization low and you avoid paying high interest rates. In the end, you save lots of money while financially empowering yourself to qualify for higher quality loans at the best interest rates.
Increase Your Income
When it comes to thinking about the rules of credit, many people forget about the income part of the equation. To qualify for and pay off higher quality credit cards and loans you will need to constantly aim at increasing your income in a variety of ways in order to improve your eligibility for more credit in the future. You can increase your income by accepting part-time jobs or working overtime or by starting a small business on the side. You might even consider using your credit lines to fund some of your money making ventures. As long as you have a solid plan to repay your credit cards or loans, using credit to fund your side businesses can actually help you get even more credit in the future.
Qualifying for the credit you want is easy as long as you’re willing and able to consistently prove your creditworthiness by following these guidelines.