3 Easy Ways to Build Credit
For many young people, mastering skills related to personal finance can be a challenge. However, when people decide to buy their first house or take out their first car loan, often they suddenly realize the true importance of being financially savvy. As people venture into adulthood, arguably the most important financial skill is building and maintaining strong credit. This knowledge can empower people to reduce costs and better take steps toward accomplishing their life goals.
What Is Credit?
You hear about it all the time, but do you know what it means? It’s important to be familiar with the concept of credit in order to use it properly. “Credit” is a catchall term for a person’s credit report and credit score. This score is a simple summary of a person’s record that helps banks and other lenders determine whether or not someone is a good risk for a loan and calculate how much interest to charge that person. When it comes to homes or car loans, even a 1 percent interest difference can mean thousands of dollars in extra payments.
Ready to dive in? Here are three simple ways that people just starting out can build strong credit.
1. Pay Bills on Time
In order to build your credit, you have to take steps to show credit agencies that you will be responsible with the money that they lend you. One easy way to earn a higher credit score is to ensure bills are in your name and pay them off on time without fail. A service that results in a monthly bill is essentially a line of credit, because you use electricity or water and then pay for it later. Paying your bills in full and on time, month after month without fail, can help your credit score skyrocket.
2. Increase Your Available Credit
Another step to improving your credit score is to increase your available credit. You can achieve this by increasing your credit limit or by securing another no-fee credit card. Knowing that you could take on more credit than you already have shows a level of self-restraint that can help increase your score.
3. Boost Your Income
Though it may not have crossed your mind, increasing your income can boost your credit score as well. A higher income means that creditors will be more confident in your ability to pay back any loans you take out. Taking on a second job or asking for a raise may mean more than just a larger paycheck every two weeks. It can really give your credit score a boost.
Improving your credit is a relatively easy way to reduce monthly car and house payments. Though the process can take time, effort and perseverance, a higher credit score and lower monthly bills certainly offer plenty of incentive.