7 Essentials of Building Good Credit

Establishing good credit is a financial necessity. Good credit will allow you to make large purchases, acquire a home loan, rent an apartment, and buy a car. You will also save thousands of dollars with a lower interest because of a high credit score. But where do you begin and how do you maintain good credit? Here are 7 essential ways to build good credit:

1. Establish credit by borrowing money or getting a credit card
2. Limit purchases to what you can pay off each month
3. If you have a balance, make payments on time
4. Avoid too many lines of credit
5. Do not max out your card
6. Check the three major credit bureaus to see if you’re credit is reporting correctly
7. Keep all documents concerning credit in a safe place to avoid identity theft

Establishing Credit

The first place to start building good credit is to obtain a loan or credit card. It seems rudimentary, but some people think by avoiding credit cards they are somehow being financially sound. True, you won’t accumulate debt if you don’t have any form of credit. However, unless you can pay cash for a home, car, or other large purchase, you’re going to need good credit. Even purchases you can afford with cash can be restricted or denied if you don’t have credit, like renting an apartment or certain types of insurance.

Within Your Limits

Now that you have a credit card, do not assume it is simply free money you can use without consequence. You should plan ahead and make sure you have enough money, typically in a savings account, with which to pay off your purchases. You may even earn rewards by buying gas, clothing, or hotel rooms with your credit cards.

Payment History

If you must carry a balance on your credit card, do it wisely. Even a relatively low interest rate for a credit card can still cost you thousands if you accrue a large balance. A $5,000 balance at 18% will cost you approximately $7,000 alone in interest of you only make minimum payments. Nevertheless, making payments on time will reflect well on your credit report.

Lines of Credit

Accumulating too many credit cards will make using them extremely tempting. When you amass debt and your income stays the same, your debt-to-income ratio suffers. Also, lenders look for new lines of credit when you apply for a loan. If you have recently acquired several credit cards, the lender may consider that risky behavior and deny you for the loan.

Maxing out your Credit Card

Another criterion lenders look for is the total debt you have compared to available credit. Maxing out your credit cards shows you not only have more debt but are in danger of overspending; subsequently, resulting in the inability to repay that which you owe or possibly lead to bankruptcy.

Credit Bureaus

Think of your credit report as a car. Your car needs routine check-ups to make sure it’s running properly or you could break down unexpectedly. The same applies to your credit. Allowing even a seemingly trivial mistake or idiosyncrasy to go unexamined on your credit history could cause major problems down the road. The three major credit bureaus you should routinely check are Experian, Equifax, and TransUnion.

Keep Yourself Safe

It is estimated that over the last five years identity theft has cost nearly 27 million consumers over 5 billion dollars. Thus, it is imperative you protect your confidential information from falling into the wrong hands. Trying to prove your innocence and expunge the detrimental effects of identity theft can cost a great deal of time and money. Unfortunately, you are guilty until proven innocent when it comes to credit.


You truly can control your financial future by building good credit and maintaining a good credit score. The benefits will save you thousands and make important purchases available to you. However, if you suffer from exceedingly high debt, you need to seek professional help. Waiting merely another month can cause your plummeting finances to crash. Due diligence and discipline are required to find and implement a successful financial plan, but a debt free life is in reach.