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How To Build Good Credit History and a Improve Credit Scores

Obvious Ways To Improve Credit Scores

There are the well known ways to have good credit history and to improve credit scores. Plenty of sites provide these recommendations and they are fairly simple. We will list those ways for you here and won’t spend too much time on them because you they are obvious and you already know them. Here they are:

  • Pay off your debt or get rid of your debt:
    Duh!  If you pay off all of your debt, of course your credit history will be favorable.  You don’t have to be a genius to figure this one out.
  • Pay your bills on time:
    No brainer… If you pay bills on time, they won’t be late.  If they aren’t late, you won’t have late payments on your credit history.
  • Check your credit report:
    If you don’t check your credit report, how will you know what needs to be improved or what mistakes might exist that need to be corrected.  Step 1 – Pull your report.  Step 2 – Check for errors.  Step 3 – Fix the errors.  Done.

Ok, now that the obvious has been stated, let’s move on to the ‘not so obvious’.

There are different types of debt and the variety of debt can help lead to a better credit score.  Paying revolving debt (like credit card debt) each month is a good entry on your credit report, but credit bureaus and banks won’t value it towards your credit history as much as secured debt like a house payment or car payment.  Secured debt has more at stake.  There is an asset involved in secured debt and regular payments towards it are usually higher amounts due to the value of the asset and a scheduled term for the payment plan.  You can pay minimum payments on a credit card that will take you 20 years to pay off an amount or you could charge up $100 on your credit card each month for a cell phone bill and pay it off to clear the debt each month also, but neither of these moves is going to impress a bank that you might want to borrow from.

Owing a larger amount like $30,000 on an asset like a car (what is referred to as secured debt) is a more significant financial commitment and, if managed properly, can make a great positive impact on your credit score.  The secured debt usually has a scheduled time frame in which the debt must be fully repaid along with interest and processing charges.  Paying $500 per month to pay off a car in 60 months is a much bigger commitment than paying your $100 phone bill through your credit card each month especially when you can elect to pay a $25 minimum payment instead of paying the whole bill on your credit card every month.

It’s not that revolving credit lines are not valuable.  It is just that revolving debt is easier to get and should be easy to manage if you spend responsibly.  So, having some revolving credit lines (your credit cards) are the first step to proving that you are responsible.  After you build what you can with revolving credit, secured credit lines like home loans and car loans are your next level of debt.

NOTE:

We are not recommending that you go out and get a Porsche that you really can’t afford just to build your credit.  Be responsible and don’t use credit improvement as an excuse to overspend!  It would be more responsible for you to get a used car that you have the money to buy outright in cash, but, instead, you get a loan with a low finance rate for a small amount of it so that you free up some cash for emergencies or investments, and you don’t have too large of a payment to manage each month.  This would be the responsible way to handle it while improving your credit with a secured loan.

Usually, this type of secured loan is much harder to secure than credit card lines of credit.  So, if you still can’t qualify for a secured loan, don’t worry.  Just keep doing what you are doing with your current credit card payments until your bad credit history ages off your credit report.  Don’t make any late payments so that your credit score will eventually flip upwards like a switch when all the bad entries come off.

Don’t Be Discouraged By Negative Credit Entries on Your Credit Report

We know you have read by now that bankruptcies and late payments take a long time to come off your credit report (10 years for a bankruptcy and 7 years for bad payment entries), but don’t let this stop you from trying to improve your credit.  It does not mean that you should just hide under a bridge for 10 years.  You should really still be doing everything you can to improve your credit score because YOU CAN STILL HAVE A GOOD CREDIT SCORE EVEN THOUGH THERE ARE SOME NEGATIVE ENTRIES ON YOUR CREDIT REPORT!

If you have a bankruptcy that shows on your credit report that needs a few more years to come off, but you’ve got 5 years of no late payments and a great track record of paying your mortgage, your car, and your credit cards, you could be in very good shape on your credit report.  The positive history will trump the old negative history.

Don’t lose hope on your credit.  The worst thing you can do is to continue in the same path and never improve your credit.  It may take some time to improve your credit score and clean up your credit history, but there is not much that is worthwhile and valuable in the world that comes instantly without putting time and effort into it.  Just think of your credit history as another thing in this world that follows the rules of engagement as everything else.  To make a plant grow, you need time and resources (sun and water).  Eventually, the plant will bear the fruit that you can eat.  In time, you will enjoy the sweet fruit of your efforts.

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