One of the most important things you can do for your financial future is to build a good credit score. This will help you to get reasonable rates when you buy a home, get a job, and even get lower insurance rates. Here are three things that you need to do in order to build that good credit score:
Build credit through multiple types of loans
Creditors like to see that you are using more than just credit cards. The most important thing you can do with any loan is to pay it off quickly to avoid paying too much interest. Take out responsible installment loans, open credit cards, and purchase things using credit instead of cash. If you have the cash to pay off your loan immediately, keep the line of credit open for at least six months to help build your credit history.
Keep current on your payments
The most important thing you can do for your credit is to stay current on your payments. If you are having a hard time with your existing payments, don't open additional lines. Instead, make minimum payments on most of your balances and pay off the line of credit that has the highest payment. Once you pay off the line with the largest payment, it will give you additional free cash flow to keep afloat and then pay off your next highest balance. If you find yourself running into issues with your existing credit balances, avoid opening any new lines of credit until you are able to successfully manage what you have.
Because the interest rates on credit cards can be particularly onerous, be very cautious with credit card lines. Charge only what you can pay off every month and don't treat them as a loan. If you need a loan for a purchase, look at another credit option to help finance it.
Look for incentives to open up a new line of credit
One of the best benefits to opening credit cards can be the incentive programs that banks and other lending institutions offer in order to open up a line with them. Before you open a credit card, weigh the card's reward program against its annual fee. The most valuable rewards programs are flexible points that many card issuers offer. These points can be transferred into a variety of travel programs for flights, hotels, and more. If you aren't a traveler however, consider a program that offers a fixed cash back percentage.
As you do these things, you'll be able to improve your credit score and make your life easier. If your credit debt has gotten the better of you, consider credit counseling.