How to Build your Credit

To achieve good credit does not require a financial guru or some debt consolidation program or anything, for that matter, outside of your own control. I will give you one simple piece of advice that will seem blatantly obvious to most, yet somehow this concept seems to slip through the minds of thousands of people like sand through a sieve. In order to develop good credit follow this one simple rule that has kept my credit score in the seven hundred:

“Don’t spend money you don’t have.”

This advice needs little explanation, but for those thousands who choose to ignore this advice let me attempt to make it more clear. I am not saying do away with credit cards, actually I would stress the opposite. In order to establish credit you must spend money. however making purchases that would cause your balance on your credit card to exceed the money you actually have will lead you to places you don’t want to be. If you cannot afford to pay off your balance in full every month than do not make the purchases. I would encourage you to pay off every balance in full in order to avoid finance charges. In addition to saving money on interest, you will establish yourself as someone who is trustworthy, therefore increasing your credit. Lenders will give money to people that have a long history of this type of behavior. In fact, to those who have especially impressive histories lower interest rates are available.

Unless you are extremely wealthy it is obvious that eventually you will have to purchase something that you actually don’t have the money for. For example, a new car, house or an education. For most these are necessities. If they are not a necessity to you, I would reconsider spending money on them. But, as I said, to most transportation, shelter, and a means to make a living are a must. So the exception to my rule extends to these three factors only! But, my rule still can be applied to these factors when calculating how much each of these will cost you per month.

Most people have a checking account that they generally live off of. This account usually receives monthly or bi-weekly deposits from pay checks that account for the incoming cash flow. Hopefully the deposits are equal to or greater than the outgoing cash flow, or money that you spend on regular living expenses. If this is not the case, reevaluating your spending may help your credit. For each purchase that you make, I would recommend that you determine how the monthly payments may affect your budget. Will you need to change the way that you live? Will you need to eat less, car pool, move into smaller apartment, or make any other life style changes to accommodate your purchase. Lenders understand that people need things that they can’t afford, and reward those who are able to keep up with there payments. Consumers are rewarded with high credit scores which translates to the ability to borrow more money, if needed, at lower interest rates.

Too often our desire for life styles do not match our realistic life styles. Whether we blame the media, our parents, or ourselves is not relevant. What is important that individuals realize that they must prioritize their spending and, to put it simply, “Stop spending money that you do not have!”