How to Build or Rebuild Your Credit
Having a great credit can mean cheaper interest rate, an advantage when it comes to getting a job or even getting approved for the mortgage to buy your dream home! On the flipside, a bad credit can cost you thousands of dollars in high-interest fees and possibly a denial of loans or credit cards!
Many other countries do not have a strict or “confined” ways of purchasing cars, homes or even large priced furniture. What I love about America is that we at least have options to purchase these largely priced products with the idea of trust.
After all, credit is just another word of trust. By obtaining a credit card, you are essentially being trusted by a company to pay back the money you used plus interest. Ultimately, the process of building a credit is building trust with companies, suppliers and retail stores.
Here are our recommendations at building or rebuilding your credit:
Step 1.) Obtain a Secured Credit Card using a security deposit as a collateral.
We recommend joining a credit union and obtaining a secured credit card. When you apply for a secured credit card, you will be expected to pay a refundable security deposit. Typically they range anywhere between $250 to $1000. This is so that the Credit Unions know that you have some “skin” in the game and even if you don’t pay your credit card bills, the credit union can take your security deposit instead. You CAN apply for an unsecured credit card but your likelyhood of getting approved is very low. Secured credit cards are great for just starting out or if you’re coming back to rebuilding your credit.
Step 2.) Use your new Secured Credit Card but here are the rules!
Go to Vegas with it!!! No… Just kidding. Here are couple “rules” to follow when using your credit card. This is especially true if you’re new to credit cards. And if you are rebuilding your credit, let’s make sure we’re on track to your credit rebuilding process.
First, be sure to keep your utilisation rate down below 20%. Utilisation rate simply means how much of the credit line are you using. For example, if you have a $500 secured credit card, we recommend that you only use up to $100. If you go past 25% ($125 in this example), it may actually start bringing your credit score down as you are considered a higher risk borrower. As long as you use the credit card and keep the utilisation rate below 20%, you’ll be on your way to getting approved for higher credit limits!
Second, do not ever cancel or close your credit cards! Even if you don’t use it or paid off the card, do not close the account! This is due to the fact that the longer you have your credit card, the better it is for your credit. If this is going to be your first credit card then closing this very credit card will be a deadly mistake! The longer your credit history is, it will improve your credit!
It’s like, having a friend that you’ve known for a very long time and you have a deep trust with that person. It’s the same thing with credit cards. The longer you have a relationship with them, the more trust you will gain from them.
So those are our recommendations for you to build or rebuild your credit! Be sure to stay responsible with your credit card and make wise credit decisions!