Easy Steps for Building and Rebuilding Your Credit

While attending a Starting into Practice Seminar, Jen Gantzer, had some practical tips to share with her peers about building and rebuilding credit. Jen is studying at National University but prior to that she worked for nearly 8 years in mortgage lending. Because of the importance of credit scores in that industry, she became very skilled at counseling borrowers on how to improve their credit score to hopefully get a better interest rate or loan amount. Thanks, Jen, for sharing these tips.

Having good credit is important not only personally, but also professionally.  Those with good credit get better rates on loans, as well as better rates and perks on credit card programs. People who manage and build good credit just have better opportunities.

Whether you are building credit for the first time or rebuilding credit after a history of delinquencies, the approach is the same: open, establish, and maintain a good payment history with no payments later than 30 days.  This alone will build your credit.

However, you can be smarter than the system and use techniques, which will make your credit building better and faster. How? Make sure to establish both revolving and fixed accounts. Your credit scoring is influenced by maintaining both revolving and fixed accounts and when both are part of an ongoing pay history it boosts the scores.

Throughout the next few blogs, we’re going to look at how to establish and maintain both types of accounts, particularly looking at credit cards, as well as the traditional fixed accounts. 

Because most of us carry at least one credit card, we’re going to start with revolving accounts, particularly credit cards, and why they are not created equal.

The most common revolving account is your credit card. The key with revolving accounts is once you pay the balance down you can use the credit again -- over and over without going through an application or approval process.  For example, if you open a credit card with a $500 balance and use it monthly for gas and groceries, and then pay it down or off each month. Then you use it again the next month, you are using revolving credit.

Non-Secured Credit Cards

The most common credit card is the non-secured card. Like I described above, these are credit cards can be used month after month and they are issued by the creditor without having to send in your own money. Many of these cards carry special offers, low rates, rewards, balance transfer options, and more.

You can check the links below for best current offers or ask your local bank and credit unions. 

If you are looking for a business credit card, don’t forget to check out the perks of the MilesAway credit card offered by NCMIC.

A few important thoughts as you investigate your non-secured credit card options.

  1. Interest rates typically vary from 9.9 percent to 20.99 percent.  The best rates are given to the best customers so knowing your credit standing is critical. The lower rates are also typically available at local financial institutions that are community minded. However, it never hurts to ask if a rate is the best rate they can give you.
  2. Annual fees can range from $29 to $50, but there are still credit cards with no annual fees available. To find these you will likely have to engage with a community-based financial institution.
  3. Grace periods.  These determine if you have to pay interest on purchases even when you pay the balance in full each month. Most cards allow a 23-25 day grace period where no interest will be due if you pay the balance in full each month. For more information on grace periods, here is a great link to Consumer Finance: http://www.consumerfinance.gov/askcfpb/47/what-is-a-grace-period-how-does-it-work.html.Grace periods are of less importance when you do not plan to pay the balance in full each month.   In these cases you will want to choose a card with a lower monthly interest rate, even if it means having a higher annual fee.

There are some great credit programs available that offer a good rate, decent grace period, reasonable line of credit and other perks such as rewards.  These credit card offers are traditionally offered by community-based financial institutions. There are other offers that provide only part of the equation.  If you get a good rate, the grace period or perks might not be as great.  Or vice versa.  Know what is in your best interest and you’ll make the right choice.

So what happens if your application is denied?  You can always reapply with another program, or you can begin investigating the benefits of a secured credit card. 

I’ll talk about the secured credit cards in my next blog.

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