Good credit is the gateway to purchasing power without having to produce cash upfront. To establish good credit the quickest way, you will need to make an effort to obtain credit accounts that are valuable to your credit status. Additionally, once you start using the accounts, you will need to demonstrate your creditworthiness through responsible decisions and actions.
Applying for Credit
When you apply for credit you will want to make sure you use credit that will get reported to the major credit bureaus. Major credit cards, retail credit cards or installment loans are three types of credit that you can apply for to help build your credit. It's often easier to qualify for retail credit cards or secured credit cards than a major credit card that's unsecured. A secured credit card is good for people who have nonexistent or damaged credit that they are trying to rebuild. Obtaining and using credit with mail order companies isn't a fast way to establish credit with the major credit bureaus because the mail order company might not even report its borrowers, or they may only report to an obscure credit reporting agency.
Pay in Full
The best idea is to not charge more on your credit card than you can pay in full each month. If you pay your credit balance in full each month, you don't ever have to worry about reaching your credit limit. Thirty percent of your credit score depends on how much credit you have in relation to how much you've used. If you have an installment loan, always make sure to pay the full payment due each month. Don't skip payments or make less than the required amount.
Pay on Time
Things can happen during the month that can cause your payment to be late---a crisis, distraction or mail errors. Instead of relying on your memory and punctuality to help you make your payment on time, you can register for automatic payments via your creditor. According to information in an article posted on MSN Money by Liz Weston titled, "Raise Your Credit Score to 740," you should set up automatic payments for all your credit and loan accounts to avoid late payments, which can severely damage your credit score. Payment history is worth 30 percent of your overall credit score.
Practice Restraint
No matter what, keep the number of credit accounts or loans to a minimum that's reasonable for your financial situation. For example, if you are a college student that makes less than $1,000 per month at your part-time job, one credit card is enough. If you have a job that pays substantially more, then you could justify having more credit card accounts. Start out with no more than two credit accounts and practice responsible credit behavior for at least six months to a year before applying for a new account, according to the Kiplinger website. Applying for too much credit at one time can cause your credit rating to suffer.
When you are granted credit, you may be tempted to use it over and over until you've reached your credit limit. Resist the temptation because it will hurt your credit score. The amount of credit you use in relation to the amount of credit you have is worth 30 percent of your overall credit score, according to the website MyFICO. That means if you have a credit card with a $500 limit, you should never charge more than $150 at a time before paying the balance in full. Once you pay off the balance, you can charge $150 more. If you need to charge more than $150, make sure to pay off the balance before the closing statement each month. Then, the amount of credit you're using will show up as $0 on your credit report, which will help lenders see that you are responsible.
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