Tuesday, December 20, 2016

Charging Ahead: Five Ways to Build Credit

You've got to give yourself some credit. Literally. Fewer than half of Americans use a credit card, and having a financial clean slate could mess things up when they want to get a house or a loan. Build your credit with the following tips:

1. Check your credit score(s). 
Get a free report at annualcreditreport.com and check for correct addresses and bank accounts.

U.S. law entitles you to a free report every year, but because creditors report to three bureaus, credit counselors recommend you pull a copy from each bureau every four months.

2. Monitor your plastic. 
If you're in college and living off ramen noodles, you might not need a credit card yet. These cards are not for supplementing income. You want to build credit so you can buy a house or buy a car later on. If you sign up for a credit card, put something small on it each month like gas for your car, and get into the habit of paying it off right away.

If you already have a credit card and want another, be discerning. You don’t want to open up more lines of credit than you can handle. 

3. Pay on time. 
Start healthy repayment habits now to entice future lenders. Paying for rent, your cell and utilities won't build credit, but not paying on time can ruin it. Good habits will get you what you want later in life.

Budgeting can also help. Aim to spend no more than 29 percent of your income on housing and 35 to 38 percent on your whole household budget, which includes food, car insurance and health care.

4. Care for the credit you have. 
Most states let you do a security freeze on your credit to prevent identity theft, which prevents people from opening new accounts without your knowledge. Do this. Such freezes typically cost $10 or less for all three agencies that track your credit, so skip the expensive companies.

5. Watch your credit limits. 
You don't want to use more than 30 to 50 percent of your available credit. This means if you have a credit card with a $1,000 limit, you shouldn't use your card for more than $500 each month. If you go over, creditors see you as mismanaging your credit because you over-obligate yourself. That shiny new smart phone will have to wait until next month.

In short, as long as you pay off your credit cards on time and in full you're on the right track -- and your scores will reflect that behavior in a positive way. Need help understanding your credit report? Community Financial is here to help and will provide a free credit review. Simply visit a branch near you or call (877) 937-2328.

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