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How important it is to build a credit

By Brian Anderson
Published: Monday, October 26th, 2009

When applying for a loan or a credit card, you should already be aware of what a credit is, what’s in a credit report, who keeps your records, who produces your credit score and the importance of all of these.

To begin with, you can only increase your credit score if you know and apply one or two of the many credit score tips you can find online. However, you can only do that if you know what credit is all about, and why you are given the three digit number. Only then will you be able to realize the implications of the credit score and the things you need to do to improve it.

Credit is a term used to signify your reputation as a borrower. Your credit will tell other people, lenders in particular whether you are a good payer or not. One of the credit score tips you should always remember is that your credit is dependent on your borrowing history. All the information is recorded on what’s called the credit report. Your credit report is updated most of the time by the people you transact business with like lenders. It contains important information about your behavior as a borrower. That includes how much you owed them, how well you paid and your delinquencies too.

Other credit score tips would tell you to focus on building your credit. This is especially true among those who are new in the world of money-borrowing. Over time, you should work to build a good credit so that you would qualify to borrow bigger amounts in the future. This makes sense because without good credit, it would be impossible for lenders to out their trust on you.

It is suggested in credit score tips to understand the need to build credit. If you don’t have credit, there would be no way for lenders to know whether you are a responsible debt-payer or not. Of course, they wouldn’t want to take the risk lending people money only to find out that repayment is impossible. You need your credit to prove creditworthiness. You can impress the credit bureau and your lenders if you have good credit record. After some time of building credit, you would have a high credit score. You would want this because application for loans with attractive rates is much easier.

If it is your first time to borrow money, it means that you are one of the people who badly need to build credit. This is because, you still don’t have credit history and there is nothing on your record that would sum up to a score, lenders would need. It’s not really difficult to build credit.

One way to build credit is to take a secured credit score. The lenders would have very little risk lending you because the credit limit equals the amount of your deposit. Another of those credit score tips that would help you build credit is using a co-signer on your first credits. This means that your co-signer assures the lenders that you will pay debts while you build credit for yourself. Of course, this doesn’t really equal free loading because it is still a big responsibility to pay for your debts despite riding on the co-signer’s credit.

When you have finally built credit, be ready for the stream of offers you would get from banks and other lenders. This is not necessarily a good thing because you might be tempted to borrow when you don’t really need it.

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