If you’ve ever tried to get a car loan, mortgage or even a simple credit card, then you know that all the attributes of these financial instruments depend on how good your credit history is. Credit score, in particular, is a number that gives prospective lenders an idea of your creditworthiness; that is, based on your past actions with money, can they trust you to repay them? The extent of this trust is characterized by the interest rate they’ll charge you to borrow money from them.
But what if your past credit-related actions aren’t very good? We were all college students once, and money was short, so we sometimes took on more bills than we could handle. This is why helpful instruments such as repair.credit exist; to help you better navigate the credit landscape by repairing your credit. Here, we investigate the types of credit that exist, and how these affect your credit profile.
Credit Cards as One Type of Credit
Credit cards clearly help you build your credit; if you did some online research, then you’ve noticed that every credit card provider now allows you to see your FICO score (or a similar score based on the metrics) without performing a hard inquiry into your status. Usually, the score is updated every couple of months, which means that you can see a change in March based on actions you took in January.
Consistently paying your bills on time is one of the most surefire ways to improve this score. Remember; the score is an indication of your creditworthiness, and nothing says “trustworthy” like consistent, on-time interest payments. These days, multiple credit card companies are hungry for your business, so you can get favorable terms with many of them.
Although this is rare today, sometimes, it can be hard to get credit card offers if your score is very bad. However, even in this case, you can definitely request a secured credit card to help you rebuild your history. All that’s necessary is a positive bank account balance with the bank or credit union that will issue the secured card; the amount of money you can borrow is fully dependent on how much you have in the bank. This way, you build up your credit without placing the issuing bank/union at financial risk.
The Importance of Different Types of Credit
The above (credit cards) is known as revolving credit. It represents a significant contribution to your credit profile. There’s a second type of credit that also counts, and this is called installment credit – it refers to loans such as unsecured loans and debt consolidation loans. By getting one of the latter two, you add a different dimension to your profile that doesn’t count against you in the way making too many credit card inquiries does.
More than anything else, though, the extent to which you pay down your credit account is the most important factor in reducing your debt. So, if you obtain multiple types of credit, be sure to pay them all before or on the due date. Paying down debt reduces your credit utilization, and having multiple lines of credit increases the total amount of credit with which you’re being entrusted. These are both positive contributions.
Additionally, another plus is making sure your balances are as low as you can feasibly manage. Of course, you have to use your credit in order to improve your score; but showing lenders that you have a low credit utilization rate strongly suggests that you’re financially responsible, and you don’t need to live on credit. This is another reason why having multiple credit cards helps (don’t have more than you can manage, however) – you get to spread the amount of credit you’re using over several cards.
A Final Note on Credit Accounts
If you succeed in paying down an account completely, do NOT close the account. The length of time of time your oldest accounts have been opened represents a positive influence to your credit score, and it’s one you should take advantage of – even if you plan on never using that particular card again.