Build Your Credit Score the Freeloader Way

By: Vince Shorb

Do your absolute best to have credit card industry insiders refer to you as a 'deadbeat' or 'freeloader'. It may not sound like something you want but for those of you interested in a high credit rating those terms are music to your ears. 'Deadbeats' are people that pay their credit card balance off in full each month.

To know why these financially savvy customers are referred to as 'deadbeats', lets look at it from the credit card company's point of view. The CEO's of credit card companies ideal customers are 'revolvers'. Revolvers are customers that carry college debt and credit card debt; that's how they make their money. A perfect customer in their eyes is one that makes the minimum payments. These people will have carry credit card debt for a long time. Depending on the interest rate, if you make just the minimum payments, it could take you more than 15 years to pay credit card debt off.

Credit card companies also like customers that frequently make late payment and go over their limit. Just by paying late, credit card companies can jack up your interest rates and charge you additional fees. Going over the limit can have the same consequences. The credit card companies may force you to pay the balance below the limit or you risk having these fees add up month after month.

So strive to be a 'deadbeat' and 'freeloader'. Be the credit card company's worst customer! This is the first step to long term financial success planning.

Use credit cards to build your credit score. Before you empty your wallet or purse and destroy your credit cards, it is important to understand the benefits of having open revolving credit. Of course credit cards make it easy to reserve a hotel room, rent a car and are a convent way to pay. It's important to understand that they do a lot more.

Credit cards are an important tool in your financial toolbox.

Credit cards offer you an effective way to raise your credit scores. Most already know that by having good credit scores it will help you qualify for loans easier. What's more you could receive lower rates and lower closing cost. A side benefit of higher credit scores is that it will help you avoid the embarrassment of being denied for a loan.

Credit cards can raise your credit score becasue of the way the credit bureaus grade you. The credit bureaus determine customers credit scores based on their ability to repay debt. So if you never established or maintain credit transactions, your credit scores will be lower. So if you always pay cash and don't have any loans you will have poor credit.

An easy way to understand this is by looking at how teachers grade you in school. If you have never taken a quiz, test or completed and assignment then how can the teacher grade you? It's the exact same thing with the credit bureaus. It's your responsibility to prove to the credit bureaus that you have the ability to repay debt. So by using your credit card and paying it off in full each month you are rewarded with a higher credit rating.

To use credit cards to raise your credit score there are some simple steps you can take. First, once you have a working budget and money saved, build up $25,000 to $45,000 worth of available revolving credit. Then use your credit each month and pay them off in full. Make sure not to carry any balance over otherwise you will have to pay interest on the amount you owe. By paying it off in full before the next month you will not have to pay interest charges to the credit card companies.

Before starting to build your credit scores it is important you take the necessary safety precautions. Make sure you are financially secure before starting to use credit cards to build your credit score. Before you go apply for a credit card you must have:

1) Six month of bills saved. You should have an emergency fund that is equal to six months worth of your monthly bills. Set this money aside in your savings account. To illustrate, if you have bills of $1500 a month you should have $9000 in your savings account. That way in case anything unexpected occurs you will avoid the credit card debt plague.

2) A working budget. An easy test to see if your budget is working is if you're able to save money each month. In other words, check to make sure that you bring home more money than you spend.

3) Automated bill payment method. Set up an online automatic bill payment for all your bills that are reported to the credit bureaus. By having an automated system in place you won't have to worry about forgetting a bill. It can happen easy and one late pay will haunt you for 7 years.

You're in complete control of your budget. If you're the type that will spend money if you have it, you probably should consider waiting to get a credit card. Get your spending habits in check before signing up for a credit card.

5) Protect your identity. Make sure to destroy all financial statements. Shred all sensitive documents before throwing it away in the trash. There are plenty of dumpster diver that would love to get a hold of your personal information. Also be careful when submitting personal information online.

Those 5 steps will help you to become a great 'deadbeat'. A 'deadbeat' with a great credit score!

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