Every financial decision that you make will have a direct impact on your credit score. The moment you fail to pay your monthly credit card due, it will immediately affect your overall credit report.
Whether you're paying for your credit card bill, utility bill, or even renting your apartment, it will affect your overall credit. This is why it is essential to have good credit or start your journey to establishing credit.
Credit scores can change with the way you handle your finances. Start right now and have a good and solid foundation with your credit. Check out the article below to learn more about establishing good credit.
Why Do You Need to Establish Credit?
Establishing credit is very important, especially now that many financial products are out there.
Every move that you make financially will have an impact on your credit. Before you go to the bank or apply for a credit card, the provider will examine your credit score.
Your credit score shows how much of a risk you are. If you have good credit, they are more likely to trust you with enough money until you prove you are trustworthy or creditworthy.
The higher your credit score, the better your chances of having access to more perks.
How Long Does It Take to Establish Good Credit?
Establishing good credit only takes a few hours, and it will have a long-lasting impact on your credit score.
Most of the time, banks and other financial providers update your credit report around every four to six weeks. As for new accounts, it will take a few months before you can see your credit.
This is because providers often view new credit accounts as a sign of risk hence they need more time and data to process if you're truly creditworthy.
Tips on How to Establish Good Credit
With that in mind, there are a few things that you can do while you're waiting for your credit score to appear.
The first few months after opening your credit account are vital to establish good credit.
Make as few mistakes as possible during this time so it will not tarnish your entire record.
You must follow these tips so you can have a solid foundation with your credit.
Stop Applying for Too Many Credit Cards
It is quite tempting to apply for a lot of credit cards especially if we know that we're capable of paying for them. When you apply for a credit card, it will immediately appear on your credit report.
Most providers often do a hard and soft inquiry. Hard inquiries are often visible to other providers. If you've been applying for a lot of credit cards, they can see that and it could mean that you're desperately trying to gain access to funds.
It may look like you're struggling financially, immediately making you a risk for them. Stop applying for too many credit cards and focus on one at a time.
Use Your Card Carefully
Once you have your credit card, you might be tempted to swipe it left and right and purchase all the things that you want.
This will immediately send a red flag to your provider. It is also a risky move that you spend your credit limit immediately.
Try to keep your spending below your credit limit, or at least don't go beyond 30% of your overall limit.
Make Payments on Time
This is probably one of the most critical tips that you will need to learn if you want to establish good credit.
Always make payments on time and in full. This goes to show that you are financially responsible and it will reflect on your overall credit report. You must pay before or on your due date, whether it is your credit card bill, mortgage, or personal loan.
Late payments will put a mark on your credit score, and it will stay that way for a very long time. It is going to be very difficult to recover from a bad credit score.
Apply for a Credit-Builder Loan
Aside from an entry-level credit card, there are other ways to establish good credit. Apply for a credit-builder loan instead and ensure you can pay off your monthly bill on time.
This kind of loan will let you borrow an amount of money, and when you start paying your agreed monthly rate, you will start to build your credit.
Since you're still starting, this will be one of the most significant steps to help you establish good credit.
Take Advantage of Your Student Loan
If you have a student loan that you're still paying since college, take full advantage of it. Student loans might be menacingly painful to experience but you can benefit from it especially if you're planning on building good credit.
Student loans are still considered to be installment loans which are also recorded in your credit report. Pay off your student loan.
While they may not greatly affect your credit, they can still be a good way for you to establish good credit.
Ask to Become an Authorized User
An authorized user is someone who is added to the account of a primary credit cardholder. They are usually not responsible for the monthly balance however, your name will be affiliated with the account thus making you visible to credit bureaus.
You can approach your parents and ask them to become one of their authorized users if you plan on building good credit.
You don't even have to own or use a credit card to benefit from this arrangement. Being an authorized user helps reduce the time it takes to generate your credit score.
Conclusion
Starting early with your credit journey is important to establish good credit. It usually takes around six months to generate your first credit score and a lot longer if you want a solid foundation with your credit.
Follow the tips above to avoid the pitfalls and have a good background with your credit.
