Q&A: how to start a good credit rating?

credit rating
by Cornell University Library

Question by Okaki: how to start a good credit rating?
i just got my credit card and i’m wondering what this credit rating thing is all about, and how to keep my credit history good?

and what not to do

Best answer:

Answer by nadadime
Your credit rating is like a score of your debts and payments. The higher your rating, the more credit you can get in the future for things like student loans, cars or a home.
Potential employers also look at your credit rating to see if you are reliable and trustworthy.
The best way to keep your history good is to make payments on time. If you can’t make the full payment when due, at least make more than the minimum payment. It will show up on your credit score. If you miss a payment, or are late with a payment that will show up too.
Protect your card as if it were cash! Don’t give out your credit card info to anyone, don’t loan your card to others and check your report often to see if anyone else has tried to use it. There is a lot of identity theft out there.
Hope this helped.

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2 Comments.

  1. make all payments on time w/ at least minimum amount due and NEVER charge more than you know you can pay at bill time. DO NOT go crazy and get carried away with the charging,it can easily get out of hand. after this card has been established for approx. 8 months consider a second line such as furniture,home furnishings,etc. a little credit w/ good history is great instead of no credit or multiple lines w/ a fair pmt. history. when your credit is checked for whatever reason,if you open line OR NOT,multiple checks under 6 month time frame can lower your score.THIS IS TRUTH!! and simple things such as getting cell phone,home sat.systems,etc. all check credit…….hope i helped….just remember GOOD CREDIT can and will make a difference years and years down the road and can save you considerable amount of money on major purchases as far as interest rates on car,house,etc.

  2. Hey Okaki,

    It’s good that you came to Yahoo Answers to ask about how to start a good rating and wondering how credit works. You can think of credit as a report card on how you pay back what you borrow like one of the posters said. I’m going to break down what makes up your credit score.

    1. Payment history-35%. If someone borrowed $ 5 from you and paid them back, chances are you would want to let other people know that they didn’t pay you back and not to lend them anything! The same goes for this. If you’re late on that new credit card you got, best believe that the credit card company is going to let it be known. Plus, from a moral standpoint, you should pay whatever you owe, simple as that. An easy way to do this is by opening up a checking and savings account with a bank that hopefully has online billpay. This way, you have a quick and efficient way of paying all your bills especially since they get paid fairly quickly.

    2. Total debt owed vs. available credit-30%. Just because you got a credit card doesn’t mean that you have to go haywire and spend it up, remember you do have to pay it back, with interest. So it’s important that you spend what you know you can pay off fairly easily. Maxing out the credit card hurts your score. An easy way to use the card would be to make small purchases ($ 20-30/month) that can be paid off on time every month. That way, you’re able to control the balance and not get charged a lot of interest. Also after a year or so of paying on time, if the credit card company hasn’t done it already, request for a line increase. Now that doesn’t mean that you should go out an use it up, unless you’re able to pay it. Having high limits that are paid off show responsibility with credit along with a cushion between what you owe altogether and what you have available to borrow.

    3. Length of time establishing credit-15%. The earlier you’re able to establish credit, the better it looks in the long run if you do it properly. Credit is designed to be used over time, you can think of it like a fine wine: it gets better with age. A good credit report consists of a couple of credit cards that have been opened for a long time with excellent payment histories. It shows reliability, stability and ability with credit. With regular line increases, having a credit card for several years should be the only credit card you should ever need.

    4. Types of credit established-10%. Having a credit card is just a portion to building credit. There are 2 types of accounts, revolving and installment. Credit cards are revolving and car,furniture,appliance,personal signature, student loans and mortgages are installment credit. This doesn’t mean going out to spend money that you don’t have just to build credit. It just takes more than just a credit card to build credit, but apply for what you need(which I’ll talk about in #5) but just not more than one of the same thing. An example of a balanced mixture of credit would be 2 major credit cards (Visa/Mastercard/American Express/Discover), 1 department store card and some kind of installment loan.

    5. Inquiries and New Accounts-10%. Every time that you apply for credit whether you’re approved or not, a “hard inquiry” is created and can drop your score several points. Like I mentioned earlier, you should only apply for credit when you really need it. Applying for credit left & right gives the appearance that you’re desperate and you’re “fishing” for credit. Now the only time that this doesn’t completely apply is when you’re shopping for what’s called “big ticket” items like cars or home mortages. This is allowable as long as it’s pulled within a certain time. Also keep in mind that that it will take anywhere from 6 months to a year for that new credit card you got to start reporting on your credit.

    so in closing, the main things I’d like to tell you is pay on time, use what you need, and…

    Good Luck!