Are you going to open a credit card or apply for a loan? The credit card company or lender will check your credit report and credit scores so to get a better idea of how managed your credit in the past.
If you’ve been managing credit effectively and never failed to make your payments on time, you’re likely to have good credit. So, you’ll have more chances of getting a credit card or loan with nice terms and rates. If you didn’t manage to make your payments on time or never used credit, you’ll have difficulty getting approved for a loan or credit card, or you’ll get them with higher rates.
Merchants interested in the best way to build credit should consider turning to a respectable business loan provider like First American Merchant. FAM is also a reputable payment processor that specializes in the high risk sector and offers exceptional business funding opportunities to merchants of any type. Bad credit or lack of credit isn’t a problem for FAM. First American Merchant boasts an A+ rating with the BBB and offers the lowest possible rates in the industry.
It’s important to know that your FICO score is affected by the following major components:
- Payment history – 35% of total credit score
- Credit utilization – 30% of total credit score
- Length of credit history – 15% of total credit score
- New credit accounts – 10% of total credit score
- Mix of credit accounts – 10% of total credit score
Each of the mentioned components can help you build a good credit history. Below you can read what steps you can take to establish credit successfully.
- Use a Secured Credit Card
A secured credit card can help you establish credit even if you’re starting from scratch. Like a traditional card, a secured card must be paid off at the end of the month so to avoid interest payments.
- Become an Authorized Credit Card User
You can try becoming an authorized user of one of your family member’s credit card account. If he/she has a good credit, you’ll start establishing good credit as an extension of their credit history.
- Apply for the Right Credit Card
It’s important to choose the right credit card to apply for. Consider taking into account annual fees, interest rates, credit limit, billing cycle, rewards or cash back, and cash advance fees.
- Keep Your Balance Low
Your balance-to-credit-limit ratio should be around 30%.
- Pay off Your Balance in Full
Make on-time payments and don’t fail to pay off your balance in full so to avoid paying interest.
- Auto Pay Your Monthly Bills
Use your credit card account to auto pay your monthly bills. This way, you won’t miss your important bills and your credit card will be paid on time.
- Don’t Apply for Too Many Credit Cards
To build credit using a credit card, just one account is enough. Don’t complicate your finances with multiple cards, balances and payment dates. Applying for multiple cards at once can have a negative impact on your credit score.
- Don’t Close Your Unused Accounts
Using a credit card longer makes you more reputable. Closing your unused accounts will negatively affect your credit score.
Building good credit is important if you want to open a credit card or get approved for a loan. Follow the above-mentioned best practices so to avoid hurting your credit score.