Credit can play a big part in anyone’s life. It’ll come into the picture across many milestones in someone’s life – from certain jobs that require good credit to buying a home. It’s particularly important when it comes to applying for student loan refinancing. No one is born with good credit – responsible repayment of debt and on-time bill payment build your credit over time. The best thing you can do if you don’t have a line of credit is to open one and begin using it responsibly. Building credit will assure lenders that you will repay debts, opening the door for potentially life-changing loans.
If you currently don’t have an open line of credit, we can help you. Two good ways to establish a line of credit are secured credit cards (requires a deposit) and credit-builder loans (a loan given to a savings account which cannot be accessed until it has been repaid). Both are relatively low-risk ways for lenders to help you set up a line of credit or boost your existing credit. Once you have boosted your credit, you may be eligible for student loan refinancing to save you money. If you have money in the bank but no credit, you can opt for a share or certificate-backed loan, wherein a deposit at your financial institution is held as collateral until the loan is repaid. These methods can help build credit without exceeding your means.
Once you’ve established a line of credit, it’s important to keep your balances low. Ideally you should use under 30% of your available credit each month. If a large purchase requires more than 30%, try to pay it off incrementally as soon as you can start making payments. If you have small balances on multiple cards, pay them off! This will make student loan refinancing easier.
As you look for student loan refinancing, avoid anything that hints at risk, i.e. larger than usual charges on your credit cards. Also, charging any fees related to financial tumult ahead, such as a divorce lawyer is a red flag to a lender.
As you work on improving your credit, you may come across opportunities to “Pay for Delete” and remove items from your credit report had previously landed in collections. Keep in mind that lenders appreciate the fact that you’ve paid your debt, and old debt records help paint this picture for them.
Every year you are entitled to one free credit report from each of the three credit reporting agencies: Equifax, Experian, and TransUnion. Ordering one every four months can give you a better picture of your true credit score throughout the year. You can also view your credit scores from TransUnion and Equifax through Credit Karma. This allows you to consistently monitor for anything suspicious that can damage your credit score. Always be on the lookout, as identify theft is common and can do significant damage to your credit score.
Regardless of your immediate need for credit, keep in mind that the world is becoming more dependent on the usage of credit score systems to make financial decisions. This means it is important to continually invest time in learning how to keep your credit clean, and more importantly, making all your payments on time in order to woo potential lenders when you made need them.