How to Build Credit

Whether it’s to buy your first home, take out a loan for college or pay for a wedding ring, getting credit approval is a part of life. Unfortunately, this is not as simple as it seems. Here’s how to build credit.

 
Start Small
The best way to build credit is to start small and open an account for store credit or get a cell phone contract. The store or supplier doesn’t really matter – the key here is to make your repayments regularly to show future creditors that you can handle the financial responsibility of small repayments. Once you’ve come to grips with a single credit account, open another to show that you can manage your money, but ensure that your monthly obligations are manageable.

 
Make Repayments on Time
Building credit is essentially about proving that you are reliable, and making loan or credit repayments on time is an essential part of this process. When you successfully apply for a loan, make sure that you know exactly when your first payment is due, what that initial payment is, and when you will be expected to make repayments. If possible, try to add a little extra to these repayments – it will make sure your overall repayment is as low as possible and again suggests to your financial stability.

 
Spend When Needed
You need to spend money on assets as well as lines of credit to build a good credit score. Once you are earning enough, buy a big-ticket item. Not only will this diversify your fixed asset portfolio, it will also make creditors more confident in your desire to spend and use the money they loan, which makes you a more attractive credit prospect.

 
Avoid Crippling Debt
Too many people spend extravagantly and find themselves facing so much debt that they cannot keep up, which naturally has a negative impact on their credit score. Based on your salary, you need to calculate exactly how much you can afford to repay to creditors comfortably each month. Do not get yourself into debt with the excuse that you are building credit, you will only be reducing your chances of ever getting the kind of credit you are looking for.

 
Be Patient
Like so many milestones on your financial journey, you will have to wait to build your credit. Don’t rush into debt, instead take each of the steps above and give yourself the time needed to prove that, when it comes to borrowing money, you can be trusted.