How good credit helps you (and ways to build good credit fast!)
From purchasing a cup of coffee by sliding your card through a machine to paying for a home, today’s economy runs on credit. Simply stated, “purchasing on credit” is when a financial organization (or a company) allows you to purchase an item based on the promise that you’ll make full payment on that item in the future.
Because credit has become such a mainstay of how purchasing works today, establishing good credit is more important than ever. Good credit means that you’ve demonstrated that you are financially responsible. For example, you pay your bills on time, you take out loans or make purchases that are within your financial means, and you have a solid job to ensure that your expenses don’t exceed your resources.
Bad credit, on the other hand, can suggest you’re a risky bet. And if a bank or other financial institution thinks you might not pay back your financial obligations, they will either charge you a premium for a loan or credit card… or not extend you credit at all.
What can good credit do for you? Solid credit can help you…
- Buy a better house (or rent a better apartment)
Whether you’re renting your first apartment or saving up for your first home, good credit is a critical factor in qualifying for the home of your dreams.
- Get a better job
Some employment opportunities are only available for applicants with sound credit. Solid credit implies that you make smart decisions with your money (and time and resources), which is a desirable quality in a key employee.
- Qualify for a better lending rate
Even if your credit is a little shaky, you might still qualify for a credit card, car loan, or even private student loan. However, chances are, your interest rate for these items will be higher than an applicant with better credit. What does this mean for you? Money out of your pocket: your major purchases will cost more long-term, putting you in a worsening financial situation until you clean up your credit.
5 Steps to establishing good credit
Though establishing a positive credit rating can seem challenging, it’s easier than you might think. Here are five proven methods to build—and strengthen—your credit.
1. Open checking and savings accounts
It’s one of the easiest ways to get started—and shows you take your financial affairs seriously. In banks and credit unions, your deposits are insured against loss, and can earn valuable interest as well. In addition, you can pay bills, make withdrawals and check your balance regularly. Outbound check payments from your bank allow you to show a mortgage lender your history of good payments, even if those payments are not reported to a credit bureau.
2. Apply for a credit card (and pay off your balance each month)
Once again, this simple step can lay the foundation for solid future credit. The key is to use your card to purchase items you can reasonably afford on your budget, and to pay off your balance each month or pay more than the minimum payment. To ensure that you use your credit card wisely, consider establishing a monthly budget that accurately reflects your income and expenses.
3. Make your student loan payments on time and consistently
For many recent graduates, making student loan payments represents your first opportunity to demonstrate how financially responsible you are. By making your student loan payments consistently, you show banks and creditors that you honor your obligations and are a financial “good risk”.
4. Establish a consistent work history
Part of good credit is having a consistent flow of money to help you pay your bills. By securing a good job and maintaining steady employment, you can quickly elevate your financial standing, and have the reassurance of knowing that your future expenses can be paid more easily.
5. Pay your non-credit-card bills on time
Your complete credit picture goes beyond the obvious bills like credit cards and loans. Even paying for items like utilities, doctor visits, insurance, etc.—on time and in full—can have a powerful positive impact on your overall credit standing.
Get started today!
To learn more about how to establish good credit, talk to our credit department at High Desert Medical College. We’re here to help you get the best start possible toward your financial future!