In today’s economy, it is almost impossible to get ahead without some form of credit. Maintaining proper credit is necessary for many reasons including buying a home, securing a loan, or buying goods when you lack the funds. You must learn how to build your credit as it will affect your overall quality of life as well as future financial endeavors.
What Is Credit?
Credit is the ability to receive products or services based on one’s ability to make payment after receipt. Most consumers receive a line of credit after applying at institutions such as banks, businesses, private lenders, or government agencies. The terms of service typically have fees and interest charges that make it financially equitable for lenders to provide credit.
Financial institutions extend credit after receiving an application that provides necessary information that determines your qualification. You will provide a social security number to run your credit score, banking information, your income level to gauge your likelihood to pay, and length of employment and at your current address. While you do not have to be top-notch in some areas, your credit score defines your stability and credit-worthiness.
To have credit extended, you must have a good credit history and a current score that qualifies you. Depending on your score, you will only receive a small amount of credit. For more massive credit lines, you must have an excellent history and a stable employment history. Poor credit affects other areas of your life as well. You will not receive job offers or leases if you are a risk.
There Are Four Primary Types Of Credit:
- Revolving Credit:
When you apply at a bank or merchant for credit, they extend revolving lines of credit, also called open-end credit, that provide businesses or individuals with a credit limit that does not have set monthly payment amounts. They require payments based on the minimum amount due based on your total account balance and credit limit.
The amount of your revolving credit is the maximum credit line extended at any given time. With a lower credit score, you often pay higher APR which is why it is smart to build your credit first before applying. Revolving credit includes credit cards or home equity loans. Once established, maintain them to evolve your credit history.
- Charge Cards
When you apply for a charge card, you are required to pay the total amount due on your account based on the previous month’s charges. With charge accounts, your payment will be much higher, but you have lower interest rates, access to rewards, balance transfer options, and secured cards that help you build your credit.
Charge cards also do not build up over time and increase long-term debt. Moreover, you have access to specialty programs like roadside assistance and insurance that makes these type of credit lines ideal for beginners who want to secure credit.
- Service Credit Lines
Companies commonly provide service credit lines that have balances due at the end of a billing cycle. Any time you receive utility accounts, cell phone services, or repairs, you have a line of service credit. Without credit, you will likely pay a deposit.
You should be aware that this type of credit line does not always help your credit history since some providers do not report to credit bureaus unless you owe a debt. It will help when trying to secure future credit based on the amount of time you have been a customer which is why you should pay your bills on time to show reliability.
- Installment Credit Lines:
When you owe something with a set value, you will receive an installment credit line with set monthly payments that equal the total amount plus interest. This type of credit line will include mortgages, student loans, rent-to-own stores, or car notes.
If you miss even one payment, you will likely default and pay additional fees and interest. You are also subject to repossession which will affect your credit history significantly. It is also an excellent way to engage in self credit repair practices.
Why Should I Get Lines Of Credit?
Whether you have no credit or want to self credit repair, it will help you establish your credit. The problem with banks is that they are less likely to underwrite a small, unsecured loan to help you build credit confidence. Lines of credit, however, enable you to establish and evolve as a borrower based on a set credit limit for goods, services, or loans.
Lines of credit help balance economic conditions as well. Credit users can finance one-time purchases or obtain cash advances for unexpected expenditures. For someone who is self-employed, it will also balance out business expenses in between jobs. Credit lines also offer flexible repayment conditions that make it more economical when using credit for projects.
Some companies refuse to accept credit cards because of the high cost to process them. They will extend lines of credit because they benefit from the finance charges from long-term repayment plans. They offer cheaper rates than lenders which makes it a business-friendly alternative.
Lines of credit are also beneficial when remodeling. The average cost of a typical home remodel with multiple rooms is $40,044 and can range as high as $137,000. For most homeowners with monthly mortgages, credit lines enable them to make home improvements without upfront costs.
You also have access to personal credit lines such as your bank’s overdraft protection plan that covers purchases made on your checking account. If you have bad or no credit, it is an ideal way to build your reputation since financial institutions report to credit bureaus regularly.
Keep in mind that higher your debt, the bigger your payments which often leads to disastrous consequences if you can not make regular payments. Minimum payments will also hurt your credit score and history as well, so only use this option when necessary. Also remember that if you fail to use your credit line, the institutions will charge a fee or cancel your account which will affect your credit card utilization rate, your score, history, and overall credit line.
What Is A Good Credit Score?
Most people want to know what a good score is to get lines of credit. Financial institutions consider a good score between 700-740. You should be able to secure a loan or get multiple lines of credit because you have established a reliable payment history. If your score is below 700, you should consider self credit repair options or contact a credit repair company for services.
How Do I Repair My Credit?
The first thing you should do is run a credit report and find out what your score is as well as any creditors you owe. You need to contact them and either pay or set up arrangements to begin the process of getting them paid. The companies of importance are Equifax, Experian, and TransUnion. You must check them individually as creditors typically report to only one of them.
You are entitled to receive free credit reports annually. If you are unsure of how to proceed, it is best to contact the best credit repair companies that know how to handle these inquiries.
You should also stop spending frivolously, pay your bills on time, and try to pay down any debt so that it frees up your credit limit. If spending is an issue, you will do well to take the time to figure out income and expenses and then set a budget so that you understand your obligations. It may take a year or two to build your credit, but if you intend on buying a home, it is worth it.
Best Credit Repair Companies?
Two of the most recognized credit repair companies are Lexington Law and Sky Blue. These companies provide experts in credit repair that help you overcome debt and poor credit scores because of years of knowledge and experience working with both lenders and borrowers.
These companies also provide programs that track your credit score so that you know when it fluctuates and how a positive or negative report affects your score. They will also enable you to monitor your credit regularly which helps you stay focused on repayment plans.
Lexington Law Vs Sky Blue
If you have no credit or want to rebuild your trustworthiness as a borrower, we recommend Lexington Law and Sky Blue. They are the best credit repair companies available on the market for the price – and if you want to learn which might be best for your individual situation, see our credit repair service review of each.
- Lexington Law Firm is affordable and has an excellent reputation for negotiating fairly with your creditors on your behalf that quickly helps you restore your reputation.
- Sky Blue offers a condition-free, 90-day They stand behind their services by providing essential monitoring and in-depth repair services based on necessity.
You can also visit us for additional personal finance tips to learn more about Lexington Law vs Sky Blue as well as tips on how to engage in self credit repair.