No Credit History: People who have no credit history may have a hard time borrowing money or finding credit. Understanding how the credit industry works can help new borrowers stay clear of industry pitfalls. Establishing credit should not be about increasing consumer spending.
Credit is a tool to help people achieve their goals. Establishing credit goals is an important factor in learning how to establish credit.
Credit is used to rent an apartment, buy a house, buy an automobile. These are all functions of the working adult. You may need a place to live, and a way to get to work. What are the best methods of getting credit?
This is where the credit plan comes into action. Think about money on a yearly basis. You make X number of pounds per year. That is your annual budget.
This can be broken down in to monthly budgets. This is what you make in a month. Compare that monthly amount to what it costs you to live.
This would be your expenditures. These concepts are called budgeting. Budgeting is important because if done correctly it will show you how much disposable income you have.
Disposable income is what we live on after our bills are paid. More importantly disposable income also shows us what we can afford to buy. This may mean finding a better apartment, flat or condo. It may also mean whether or not you can afford to finance an automobile, etc. Based on your budget the plan of credit can be established.
The Plan of Credit: The plan of credit is a master plan of how to move up in the world. Credit is often used to extend the quality of life that we lead. This is not always a positive use of credit.
The more credit we use the less disposable income we have. The less disposable income we have the less money that we can save. Savings is a positive way to increase the quality of our lives. You will need a down payment for a car, an apartment, a home, etc.
That down payment comes from our ability to save money. Rule number one for establishing credit is to open and maintain a savings account. If you can budget a specific amount of money to be saved each month then banks and lenders will see that you have a positive history of being able to save a specific amount of money.
Why does this matter? It is simple. Repayment of loans is based on a structured monthly payment plan. Depositing money into a savings account shows that you are capable of dealing with a structured payment plan.
To establish credit for the first time you can try to obtain a credit card. If that works, and you handle your use of the credit card responsibly then more credit will be issued to you. It is better to have one or two credit cards with a higher balance than it is to have fifty credit cards with lower available credit limits.
The more credit you have used the less you can borrow. This concept goes back to the master credit plan. Establish and use credit according to your plan. Rule number two of establishing credit is to follow your credit plan.
If you are not able to get a credit card then approach your bank and ask for a small loan. Use a portion of your savings account as collateral. Make sure that you pay the loan off on time and that you are not late on payments. Rule number three of establishing credit is to pay off the monthly credit bill before it is due.
Conclusion: Spend some time considering what you need credit for. Remember that credit that is used must be repaid. Credit is not a means to live by. If you can not afford to go out to dinner every day then do not use credit to go out to dinner. Credit should be used as a tool to better your life. Establish a master credit plan and stick to it.