Creating a credit history and improving your credit rating.

     Every person has a credit history and a credit score which ranges from 0 to 850. The younger you are the lower your score because you haven't had time to create a credit history. Everyone, including teenagers, start with a score of 0. You need to work on building your credit because almost all aspects of finances including getting a job, applying for a loan, connecting utilities, renting an apartment, etc. are based upon your credit rating. The better your credit rating, the greater your spending power and the easier it is to obtain a loan.

     Circumstances occur in which people cannot obtain a loan or obtain a credit card because they do not have any credit. A simple way to establish credit is to submit your payment history for your utility bills to credit agencies showing a favorable payment history. You can also fill out an application for a credit card sponsored by an organization you belong which may offer you an easier first-time opportunity to obtain a credit card. Have a friend or a parent co-sign a credit card application. After receipt of the credit card, use it for a few purchases (always ensure to pay them off each month!). Wait a couple of months (maybe less) for the credit card to appear on your credit report and then apply for another card without a co-signer. After receiving the second card, cancel the first one so the co-signer is no longer associated with your credit.

     Card hopping can have a detrimental impact upon your credit rating. Every time you apply for a credit card, a credit request appears on your credit report. A high number of credit requests can impact the perceptions made by credit institutions towards your credit worthiness. Switching credit cards once or twice a year will probably have a minimal impact upon your credit rating, but much more can result in a negative impact. The longer you have had a credit card account open, the better your credit rating. If you transfer the entire balance of a card, do not close that account if you have had it open for a long time. Instead, close the card if it has recently been opened and was used temporarily, then pay off your debt as quick as you can. Be sure to keep records of any correspondence with the credit card companies, even cancellation notices.

     Save the copies of checks written to pay credit card balances along with the credit card statements, especially when transferring to low interest cards. Weeks or months may pass before the balance reduction is indicated on your credit report. Proof is needed to show a reduction in your debt to prevent a misunderstanding.

     Many banks require you to show the savings ability to achieve a down payment and to show you can continue making payments. Therefore, provide them a monthly expense list containing the payments to your credit card as proof. Indicate the required minimum monthly payment as an expense and the monthly payment minus the minimum monthly payment as your ability to save. For example, if your monthly payments are $250, but the minimum is $50, then you show $200 as your savings ability. The reason is because only $50 is required. The remaining indicates your choice to pay extra towards the credit card balance as opposed to a savings account.

     If you are lucky enough to have a well-off relative who intends to give you a gift towards a down payment, obtain a gift letter indicating the relative's intentions. The letter may be used in lieu of showing your savings ability for larger loan applications.




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