Most of us understand the concept of paying our bills on time to have good credit, however the average person credit scores are in the low to mid-600s. Knowing that excellent credit is NOT a 600+ credit score, in seeking to build credit, you will find out that if all one does is pay the bills on time, then credit scores will reach only in the 600s, stagnate and over years have very little change.
WHY does this happen, especially when you are paying bills on time, maintaining little debt and paying cash for everything else? You are probably one of many that ask what are you doing wrong that keeps your credit scores so low?
It’s very simple yet complex if you have not grasped the understanding that in order to build excellent credit, you must learn to LEVERAGE your credit.
Credit initially defines how you’ve paid or not paid past payments and is viewed by businesses to predict future financial responsibilities. Anytime you need to borrow money, or even utilize certain services, your credit is called into question. Leveraging your credit means sticking your neck out there and showing that you are in fact “credit worthy.” You cannot build credit by never utilizing your credit!
I’ve found that most people who do not understand how to utilize credit, wont leverage their credit, instead paying cash for everything and never really building established credit. If this is you, I strongly suggest that you seek the advice of Credit Experts when you began planning to improve on your credit. You do not want to make costly mistakes or risk decreasing your scores.
8Deep Global Business Solutions hosts several classes on credit education as well as offer various credit services to individuals and businesses. There is more to learn about credit than paying the bills on time!
Although paying bills are a part of establishing and maintaining credit; you must know how credit works as it relates to your personal (and business) financial goals, increasing your credit scores, your ability to make purchases, receive goods/ services and even in obtaining professional employment opportunities. Most of us do not understand the importance of credit until later in their years when it becomes more restorative rather than educational.
Planning for excellent credit should start early. The time and length of an existing credit account has favorable benefits. While good credit is never cleared on your credit reports, having “aged” credit accounts open strengthens your ability to leverage more credit. With Aged accounts, creditors are able to see how long you have been paying your bills on time and how long you have managed and maintained those accounts. The earlier you begin establishing credit on an account and maintaining that “in good standing” status, the better the chances of establishing more credit and receiving increased credit scores.
By simply opening a revolving credit account, you are taking the leap in leveraging your credit. Credit Cards are usually used to begin establishing revolving accounts.
Credit Cards reveal how you handle revolving credit. Revolved credit is borrowed funds (1. unsecured- credit extended by a banking institution or 2. secured- backed with collateral –usually your own funds) that one spends and must repay in order to maintain in good standing.
Contrary to hearing about the pitfalls of credit cards, if one has a habit of paying bills on time and managing their spending, there is nothing to fear about obtaining a credit card or opening revolving accounts to strengthen your credit report and increase your credit worthiness once you understand the do’s and don’ts of having these accounts.
Whereas paying bills on time says you pay what you owe for a service rendered, revolving accounts will show that you pay satisfactory on borrowed funds.
Installment accounts are another great way to build credit. Installment accounts are accounts such as Car notes and home mortgages. These accounts say that you received a loan for a set amount and agreed to re-pay a certain amount on the loan each month until you have successfully paid the loan off. These types of accounts are the most important accounts that you can have.
Paying installment accounts on time, allows you to increase your credit worthiness up to 50% or more. This means paying an installments account of $20,000 off, will increase your chances of getting up $40,000 the next time you apply for the same type of installment loan.
Having an understanding on how revolving and installment accounts work will assist you in developing higher credit scores with the habit of paying the bills on time.
In conclusion, knowing the key elements to establishing excellent credit will aide in planning for excellent credit. Paying bills on time is only a factor in establishing excellent credit. While its role is vital, it is equally important to know how to leverage credit by establishing meaningful accounts that boost the credit and increase the credit score one desires. 8Deep Global Business Solutions is here to assist those ready to get on the right path to building excellent credit.