Guide to Good Credit

    Establishing It, Keeping It

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    To some, a credit score might seem like an arbitrary number we’re given. But it’s really data representing your credit responsibility and future financial wellbeing. Credit scores determine what steps you can take in life to own the things you want – like a home.

    Credit is a crucial factor in qualifying for a loan. Lenders look to your credit score to determine if you’re reliable. Building up good credit early in life makes it easier to buy a home later. Using (and abusing) a credit card is so easy to do. It’s difficult to build and maintain credit responsibly.

    Some people think forgoing the use of a credit card will give them perfect credit, but instead, they’ll just have a low score. Racking up credit card balances to build credit won’t help either. Charging a high balance indicates overspending and irresponsibility, and lenders and creditors see this as a liability. How can a credit card holder find the middle ground?

    To build healthy credit, strive for a credit card balance of 50 percent or less of the credit limit. Even card holders who always pay off balances in full can be penalized for charging more than half of their limit. Credit card companies report this information to credit bureaus, so even if the balance is paid, the credit score can drop. Ask the card company for a credit line increase so there’s more credit than needed. This can be done online or by calling the company. This way, there’s wiggle room for emergencies. You should also refrain from spending more than 50 percent of the limit. Credit card holders might think about devoting cards to particular expenses, such as only charging gasoline to the card. A controlled balance card is easier to control. Don’t give up swiping the card completely, just swipe it less frequently.

    One way to build your score from scratch is to be added as a joint card holder or an authorized user on someone else’s account (your spouse or someone trustworthy). If you choose this route, make sure the original cardholder has a steady credit situation. Otherwise, you could take on poor credit, and that defeats the purpose.

    Paying off bills is also important. Whether they’re medical, utility, or Internet bills, your payment activity is reported to credit bureaus. A single missed payment could damage your credit significantly. You can typically plan for these monthly expenses so you can pay them in full and on time, or at least in a consistent fashion.

    Even if you strive for great credit, mistakes happen. With time and effort, credit can be repaired. Simply identifying and rectifying errors on your credit report helps. According to data from the U.S. Public Interest Research Groups, one in four credit reports contain errors serious enough to result in denial of a loan. Review your report, and ensure it’s error-free. Check for accounts belonging to other people with the same name. Review for collection accounts, then talk to your credit card company about forgiving collection charges. Charges from collection accounts seriously damage credit scores. Double-check that all your late payments were truly late; credit card companies make mistakes and label on-time payments as such. Lastly, dispute your claims with the credit bureau, and inform your credit card company of the errors you’ve found.

    Slowly building credit responsibly is the easiest way to obtain a stellar score. Your credit score is completely in your control. The sooner you take ownership of it, the happier you’ll be down the road.

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    Nino Rosado
    Nino Rosado has been in the mortgage industry since 2002 and is honored to bring Veterans United Home Loans to Richmond. A veteran of the Marine Corps, Nino enjoys spending as much time as possible with his wife Loren and their two children, Nick and Leah.