Depending on how old you are, you may have a skewed view of how the credit system works. Some people were brought up to avoid debt at all costs. Others were raised to understand that debt is the road to success when managed properly.
Either way, many consumers have no idea how credit really works, except that it’s extremely easy to ruin it and find yourself facing bankruptcy. Click here if you want to read more about bankruptcy.
In this post, you can find some information you may not have been aware of that could allow you to either better manage your debt or start off on the right foot.
You Need Debt to Establish Credit
Often, people believe that if they don’t have the cash to pay for something, they shouldn’t buy it. Although this is a good method for preventing the accumulation of debt, there are certain purchases, such as mortgages, that you might not have the cash available for. Relying entirely on cash is sometimes a matter of pride and a sense of self-sufficiency. The bad news is that even though you are living within your means, this practice can reflect poorly on your credit history.
When it comes to being able to get the best rates and credit opportunities, you need to establish yourself and your ability to make timely payments in order for creditors to want to extend credit to you. You may not need credit for things like a used car, but you will need it when you want to buy a home or open a business. Instead of paying cash for everything, put that cash to the side and use your credit. Make the payments in a timely manner using the cash you already have, and establish a positive credit rating.
Do Not Use All Credit Available
As you make your payments on time, your accounts will be re-evaluated, and you could end up receiving an increase to your line of credit. Credit limit increases are great and provide more freedom when making purchases, but it is crucial that you avoid using all the credit available to you if you want a good credit score.
In order to maintain a good credit rating, it’s best to keep your accounts at 30 percent of the limit or less for each creditor. For example, if you have a $10,000 credit limit on one card, try to use less than $3,000 of it. And by no means should you max out your credit cards. If you use all the credit you have available, it can raise a red flag and indicate you might be having financial problems.
Not All Lines of Credit Count
Utilities need to be paid on time, but they are not going to show up on your credit report unless you don’t pay your bill and it goes to collections. These types of accounts, as well as cell phone and cable bills, can ruin your credit, but they don’t really help you establish or build credit. Creditors do want to see that you make your payments on time, so these accounts still matter, but they do not raise your credit score.
For other bankruptcy or debt management questions, call (813) 940-5120 for a free initial consultation.
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