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How To Build Credit The Easy Way

Jan 31, 2008
Starting out from scratch with no credit after high school can be a confusing time, since you have likely never been exposed to such things as credit cards, checking accounts, loans, and 401(k)s, but building your own credit does not have to be that difficult at all as long as you have a sense of responsibility when it comes to your money. You may be tempted to rush out and get a credit card immediately after you turn 18, but you cannot do this in most cases and get one without having a checking and a savings account first. You also have to have a job to be initially approved for the card, but not to keep carrying it, much in the same way that an apartment complex cannot evict you for not having a job, but they can evict you for not paying the rent.

Before getting a credit card, ask yourself what you want to use it for. If the answer is anything other than building credit, then you probably do not need a credit card. You should understand that these cards are not made to benefit you, they are made to benefit the credit card companies that issue them and that it is very easy to let your debt to them get out of hand. There are a few rules to follow when you do decide to get a credit card and start building your own credit.

The first rule is to never buy anything that you would not be able to save the cash for. If you have the money in the bank to make a large purchase with and you want to use your credit card to reap the reward points for it, that's fine, but do not spend more on the card than you can pay off at the end of the month, for that way be dragons. I recently purchased $800 worth of furniture on my credit card, but as soon as it showed up on my account activity online, I paid it out of my checking account. The point is to not make large purchases you do not have the cash to cover. If you want that new big screen TV, make a payment to your savings account until you have enough for it, use the card to make the initial purchase, then use the money you saved to pay what was charged on the card.

The second rule that you should follow concerning credit cards is to not close any of your credit card accounts immediately before you apply for a loan. This will lower your credit score, since a large part of your credit score is based on your credit history and if your longest standing account is closed, your score will drop because that history is no longer factored in.

Thirdly, and probably most importantly, is that even if you do not have enough money to pay off your card every month, you should never, ever, ever make the minimum monthly payment. Always pay over the minimum or it will take you literally decades to pay off the balance, depending on how much money you have on the card. It is easy to get behind and start paying only the minimum every month, but do not let yourself do it. For your credit, it will be a fatal mistake.
About the Author
Dror Klar is a writer in the field of finances and is currently assisting those in need of cash advances and payday loans, particularly in the state of California
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