Friday, April 20, 2007

4 Steps to Establish or Rebuild Your Credit

The first step in establishing or rebuilding your credit is knowing your current status. Once you've requested your credit report from all three credit bureau's, then you will know what your credit status as well as your credit score is.

Most people think if they pay off all of their outstanding debts and close their accounts that this will improve their credit. Unfortunately, we live in a world where everything is credit or credit score driven, therefore you must establish credit and not simply pay all your debts off and close the accounts.

I had a client 4 years ago that wanted to open an equity line of credit on her house. While reviewing her credit report I realized that the last credit account she had opened was 20 years ago. Although she had a home with a tremendous amount of equity there was nothing I could do to help her obtain a home equity line of credit. The client did not have any open/current credit accounts established.

Once you know your status, the next step you want to take is to acquire a secured or unsecured credit card in the amount of $250.00 to $500.00. Use the card and pay it off every 30 days and over a 3-6 month period you will see a positive increase in your credit score.

Once you have at least established some credit the next step is to try for a big ticket purchase such as a new or used car. Regardless of your income make sure that your first car is an affordable car. Always take into account the cost of the maintenance on the vehicle as well as the cost of the monthly insurance premium.

Your next big purchase will be a home, so be sure to manage your credit well and pay down your credit cards debts significantly before you take steps in becoming a home owner.

Remember the steps...
1. know your status 2. establish 3. build and 4. maintain.

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