The First Step to Good Credit

By: Tom Ambrozewicz

Good credit is complex to understand, build, and maintain, and many people would rather not deal with their finances. However, the very first step to good credit is easy-learn how to keep a monthly budget. By budgeting your money and keeping track of your purchases, you will have enough cash every month to pay off debts, which will help you build credit. If you keep to a monthly budgeting plan, you won't even have to think about your credit history or credit score-it will be good with no extra effort.

Good budgeting starts with records. First, collect your pay stubs and other "cash in" receipts (i.e., tax refunds, money from freelancing work, etc). How much do you make every month? Figure out the average amount you can expect to be paid every month and record this number. It may be beneficial to purchase some kind of filing system to keep track of receipts, statements, and pay stubs in case you have a dispute in the future.

Next, figure out your monthly bills. This should include rent, car payments, groceries, insurance, utilities, cellular phone, gas, and any other payment you must make every single month. Of course, this may vary a little, but you should be able to find an average. Compare this to the amount you make every month (hopefully you make more than you must spend!). The extra money you have is what you can use for spending money or put in the bank to save for the future. Also use your extra money to pay off loans early, because this will save you money on interest.

Remember that credit cards are not a good choice if you have trouble managing your money. Because they sometimes offer very high spending limits, you may find that your bill at the end of the month is much higher than it should be. Instead, consider a check card. This card will withdrawal money directly from your checking account. Therefore, you never spend more than you have. It is a good idea to keep two checking accounts-one into which you deposit most of your money, which will be used to pay bills, and the other with a check card, to use as spending money. This way, you will not accidentally use your rent money to go to the movies.

However, it is important to use a credit card if you are trying to rebuild good credit. Be very careful and remember that if you cannot pay off your debts every month, you will have to face very high interest rates. Once you learn to budget you money, keeping yourself on track should not be difficult. The key is to limit yourself so that you reserve cash for the future and pay your bills on time and in full every single month.

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