Credit Education: How to Build a Good Credit Score
By: Diana Bello Aristizabal
Para leer en Español
In order to access the various opportunities that life in the United States offers, a mandatory path is to build up a credit history, a subject that can be confusing for newcomers or overwhelming for others. For that reason, during National Credit Education Month, with the help of an expert, we’ll tell you everything you need to know to manage, improve or repair your credit.
First of all, it should be noted that credit is an indicator of your financial reliability. In other words, having a good credit rating makes you an ideal candidate for a loan, although of course that is not the only standard to be assessed.
In this sense, having bad credit can also pose a threat to your economic growth. “Credit history is a powerful tool to bring together goods and assets and facilitate the economic performance of a family or a company”, explains Ivan Jimenez, director of finance at Buskeros.com
Concretely, the credit can be used, for example, to buy car insurance, rent or buy a house or premises for a business, among other activities with an economic impact.
These financial opportunities and others are accessible when you have a good credit rating as measured by the three agencies in charge of this task: Equifax, TransUnion and Experian.
The above organizations rate each individual’s payment history, repayment likelihood, and debt capacity using different scoring models for this purpose.
Moreover, they also analyze each person considering several categories that increase or decrease credit quality. One of them refers to the type of credit used which can be, for example, for a car loan, a mortgage loan or a credit card.
On the other hand, they also take into account the percentage of use against the available credit, the duration or the time elapsed since the creation of the credit history and the timely payment history.
Getting around these variables is an art, just like correcting damaged credit, which takes time and effort. Here are some recommendations for successfully completing this task.
Effective credit management
The first thing that is needed to start building a credit history is to go to a banking institution to apply for a secured credit card. “You have to look at the annual fees that the card offers. The best thing to do is to start with the one that has a lower annual fee,” advises the expert.
Also, keep in mind that building a credit history is a time-consuming process. For this reason, it’s best to start with a card that has less available credit based on one’s ability to pay.
Then, over time, which can range from six months to a year, other things can be done to improve credit, such as applying for a zero-interest car or getting a business loan.
As for the sorting of the variables of the organizations in charge of monitoring the value of the credit, it is important to know very well what is considered favorable and what is not to avoid damaging your credit.
Regarding the percentage of use compared to available credit, the recommendation is to have a permanent monthly utility of less than 30%. “Companies that monitor credit prefer that you demonstrate financial discipline through specific management of available credit. Even better if you only use 20% and even more positive, 10%,” says Ivan Jimenez.
Regarding the length of credit history, you should know that the longer the time has passed since the opening of the credit, the better the credit strength will be, because it is not the same thing to have a history credit of three years than one of 5 or 10.
Of course, on-time payment history plays a vital role in effective credit management. To be successful in this aspect, the best way to go is to always repay the debt before the due date or, in the worst case, not exceed more than 29 days after the due date.
It’s also a good idea to make payments above the established minimum payment whenever possible. For example, if you are $2,000 in debt, paying $500, which is a significantly higher amount of the minimum payment, in a random month improves credit history.
It should be mentioned that contrary to popular belief, having a good credit history has nothing to do with living in debt. “It is more important to pay well. It’s good to have credit available but not to use it all because having full cards is not positive,” explains the specialist.
However, there are times during the year when the market understands that people are using a higher percentage of credit, such as during Christmas time. On these dates, you can lower your credit quality because you’re using way more than the recommended percentage, although if done in moderation there won’t be any long-term damage.
Fix bad credit
“The beauty of the United States is that they give you a second chance, but it’s important to start paying on time today,” says Ivan Jimenez to give peace of mind to those who, due to one circumstance or another, have affected their credit score. .
If this is your case, know that there are several ways to repair your credit and several aspects to take into account before proceeding with its correction. One of them is to realistically analyze whether the debt can be repaid or not.
If this is an impossible endeavor, it is better to hire a bankruptcy lawyer, who will work out the best strategy to start from scratch.
However, if the debt is due but has ceased to be due due to transitory circumstances, such as lack of employment or reduced income, which have already been resolved, then it is possible to catch up without problems as long as the debt does not exceed 7 years.
If so, it is wise to engage the services of a consumer rights attorney to find out what negotiation rights the debtor can access.
Non-profit organizations can also be contacted, whose mission is to provide advice on negotiating debt repayment. “These are useful to, at least, stop receiving calls and restructure your debt”, explains Ivan Jimenez.
Before hiring a company that provides this service, it is important to evaluate what they offer, as credit repair takes time, usually at least 1 year. In this way, beware of agencies that promise to fix it in 3 or 6 months.
To know for sure if the chosen option is serious, the advice is to go to the Better Business Bureau. On this organization’s website, you can view the history and performance profile of the company and determine whether or not there is fraud or poor quality in the work delivered.
Finally, check your credit history, because sometimes the debts displayed do not correspond to reality. “There are debts that are not ours or that are not an effective reflection of what really happened and it is better to correct this”, explains the expert, who suggests consulting the report’s website free annual credit report with no impact on credit history.
Following the recommendations above assumes a benefit that outweighs the financial cost of not having good credit. “This is a clear example where incitement is more powerful than punishment in the United States,” the interviewee concludes.