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Build Credit

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1. Get a credit card secured or unsecured credit card.

A secured credit card is just a regular credit card your signature and good name is their only security for getting their money back. A secured credit card is just like a “regular” or unsecured credit card, except you’re required to put down a security deposit – typically $300 to $500 – to provide assurance to the creditor that you will repay your debt. Your credit limit is often the amount of your security deposit, or a percentage of your limit.

Creditors, typically report secured credit card activity to the (3) major credit bureaus, as a secured credit card is an extension of credit. Your purchases are not deducted from your security deposit. Rather, each time you charge something, you are effectively borrowing money from the credit card company and are obligated to repay that debt. As a result, how responsibly you use a secured credit card will affect your credit score – both positively and negatively.

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  1. Only charge what you can afford to pay off in full each month.

    Building credit means consistently showing your ability to re-pay any money you borrow. Your goal is to show creditors and lenders that you can responsibly manage debt. That’s why it’s smart to start small, only charging purchases you can afford to pay off in full each month. It’s important to use your card, it’s not enough to open a credit card – secured or otherwise – and just sit on it. If you don’t use your credit card, you’re not demonstrating your ability to re-pay and manage debt. Use your card at least once a month for small purchases like inexpensive meals, gasoline and drug store essentials. Try to not charge more than 50 percent of your credit limit in a given month however, as that can take a toll on your credit score.

  2. Pay on time every month.

    The most important thing you can do to build credit and maintain a good credit score is paying all of your bills and debt obligations on time every month. Even one late payment can dramatically damage your credit score, especially early on.

  3. Avoid applying for numerous accounts.

    Each time you apply for a credit card or loan, your credit score takes a small hit. And there’s no point to chipping away at a credit score you’re trying to build up, especially when you haven’t yet demonstrated that you can handle just one credit card. Instead, use that energy to prove to yourself that you can keep the balance small on one credit card and pay the bill on time every month.

  4. Check your progress by checking your credit report and score.

    After six months of timely credit card payments, check your status by reviewing your credit report and score. Look closely at your credit report and note any positive or negative factors listed, so you have a better idea of what you need to work on next. Also make sure you take a look at your credit score – It will help you make sense of your credit report and give you an idea of how good you’re doing.

  5. After 12 months apply for an unsecured “regular” credit card.

    Twelve months of timely payments should be enough to show your credit card company that you can responsibly manage debt. Now is the time to give your creditor a call to see if you can make the switch from a secured credit card to an unsecured credit card. An unsecured card frees you from your security deposit obligation, will likely carry a higher credit limit and may offer useful perks like reward points.