7 Steps To Building Good Credit

By: Jay Peters

Have you ever seen photos of the Mayan temples? They look like pyramids, but they have a series of steps leading up to the top. Only the most valued people in their society were allowed at the highest levels. It's the same with our credit system. Most of us are struggling down at the lower levels, paying high interest rates. But if we can move up a few steps by raising our credit scores, we gain more respectability in our credit-oriented society, and can reap the rewards of lower interest rates, lower insurance premiums, and even better paying jobs. In this article, we will provide seven steps for you to climb in order to build better credit.

Step #1: Arm yourself with the right information. When you start on your hike up the credit pyramid, be sure to take along the resources you'll need. For example, a credit repair manual or kit will provide you with proven tips and techniques for dealing with your bad credit problems.

Step #2: Find out what they know. This step is also the easiest to take. In order to fix your credit, you need to find out what your potential creditors already know about you. It's all there in your credit report (actually there are three of them, each published by one of the three major credit reporting bureaus). Go to annualcreditreport.com to get a copy of each of them, for free. Read through them to find any inaccurate, negative, out-of-date, or misleading information. It's your right to get incorrect information removed.

Step #3: Lower your balances. If you are like most of us, you are carrying high balances on your revolving credit accounts. High outstanding debt lowers your credit score. Start by cutting back on your new purchases. (Do you really need a HD TV right now?) Then start paying down the balances on those cards that have the higher interest rates. But you should not pay OFF the entire balance - it's actually better for your credit score to carry a reasonable amount of debt.

Step #4: Raise your credit limit. This step requires that you increase your "high credit limit" while you are lowering the amount you owe. One method that works is to get a sub-prime merchandise card. This is not a VISA or MasterCard, but a way to buy goods from a specific company (usually the one that offers the card) by putting down a deposit, and financing the rest of the purchase. Your new, higher credit limit will be reported to the credit bureaus, and they will raise your credit score.

Step #5: Get on the phone. Why pay a higher interest rate on a credit card when you can negotiate a lower rate? As your credit score starts to rise, you'll be surprised at how easy it will be to talk with your creditors and ask for a lower interest rate. Chances are they will say yes.

Step #6: Don't trust the banks. Watch out for overdraft fees - they are easy to incur. Did you know that an ATM will let you withdraw cash from your checking account that you don't have? You'll end up with a hefty fee every time you do it. Check your balance at the ATM before you withdraw the cash.

Step #7: Don't be late. Make late-payments a thing of the past. Starting right now, make a resolution that you will pay every bill on time. It would be a shame to have to take a few steps back down the credit pyramid just because you missed a credit card payment.

Congratulations! You've restored your good credit. How's the view from up there?

Credit Matters
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