3 Secrets To Building Good Credit

Having good credit in today's world can help you get qualified for lower interest rate loans and better insurance rate premiums. Because good credit saves you money and makes it easier to borrow money, here are three secrets you can do to improve your credit.

Start with a Secured Credit Card

If you are just starting out and have no credit to work with, or really bad credit and you want to start building your credit, you can apply to get a secured credit card. 

A secured credit card is a credit card that you secure with cash as collateral. You deposit an amount of money into a deposit account. The secured credit card has the same line of credit amount as your deposit account, and you can use the credit card to make purchases. You will receive a monthly statement each month on your credit card, showing what your balance and the minimum payment is, just like a regular credit card. 

Basically you are promising the bank that if you do not pay on your credit card they can take your collateral deposit money. The bank knows that they will have their money paid back to them no matter what, and you have a credit card that reports onto your credit report every month, building your credit. 

You can start out with a secured credit card for an amount such as $500 or $1000 as long as you have that same amount in cash that you can put into a deposit account with your bank. Talk to your bank's customer service department to find out how you can apply for a secured credit card to start building up your credit.

Pay Your Credit Cards in Full Each Month

If you only make the minimum payment on your credit cards each month, you are simply paying more interest than is necessary. You don't need to keep a revolving balance on your credit cards to build credit. If you have the funds to pay off your balance in full each month, then do it. 

Your credit card company will still report each month that you have had a balance and you are paying on time. It does not make a difference that you are carrying your balance over from month to month. You do not need to pay interest for good credit.

You might decide to use your credit card for convenience as you buy things during the month. Then, when your credit card statement comes, you can pay the bill in full from your checking account funds. With this method you can still have excellent credit. 

Limit the Number of Credit Cards You keep Open

Credit cards are considered a revolving credit account because when you pay off your balance, you have that line of credit available to you to borrow again. When you have too many credit cards sitting unused and open on your credit report, they are considered open credit and potential debt. A lender looking at your credit report has to consider that all your open credit cards could be maxed out tomorrow. In their view, potential debt is the same thing as real debt.

If you have three or more credit cards that you are not using, then it is a good idea to close those accounts. Once you close them, a lender cannot consider them as potential debt on your credit. 

When you do decide to close out a few credit cards, close out the newest cards. By keeping the older credit cards on your credit file, you will be preserving the long credit history with those credit cards which gives you a longer history of good credit. Keep the credit card open that you have had for ten years versus the one you have had for two years. If you were to close the account you had for ten years, all those ten years of good payment history will disappear from your credit report.

These three credit-building secrets can help you get your credit score higher to improve your credit.