Monday, September 28, 2009

How to build good credit -- part 1

I have always felt fortunate to have a good credit score.  Having a good credit score didn't come easy though. I am in no way a financial writer or a CPA/CFA... whatever.  But I can tell you what I did to help myself get there.
  1. Start early.  I got my first credit card at the young age of 18 years old -- and did not have my parents co-sign for me.  The student credit card I received was the LL Bean card from MBNA, with only a $250 credit limit. I went through various other credit cards through college but always made sure to cancel the credit cards I did not use and kept the LL Bean card that I still use today (although MBNA is now owned by the inferior Bank of America).  Don't open too many credit cards, that could actually negatively affect your credit score. 
  2. Use often.  I used the credit card for every single purchase I could, especially items I would have normally paid in cash and/or check.  If you don't use your credit card, it's hard to build up a credit history.
  3. Pay off the balance in full.  I don't buy the theory that you need to keep a balance on ANY of your credit cards to build credit.  I believe demonstrating your ability to be fiscally responsible by paying off your balance every month is more important.  In addition, you won't really worry about what APR your credit card has assigned you -- cause you will never have to utilize it.  Think of your credit card more as a charge card or a check, don't spend more than you have.
  4. It's a marathon, not a sprint.  Building a good credit is a life long process, and requires long term planning and fiscal responsibility.  You can't start today and get a stellar credit score tomorrow.  Be good!
By following these four major steps, you could be on your way to successfully building a good credit score. 

There are other tricks of the trade that I have followed, and I will add to this topic as time goes by.

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