Whether you’re planning on buying the “big things” such as a house and car, or even the small purchases like a credit card and utility bills, it’s important to have a strong credit profile built so that you’re not as much of a risk to lenders. A solid credit profile makes the loan process a lot easier for both you and the lender – so here are 5 basic rules of building a solid credit profile.
Rule #1: Always Pay Your Bills On Time
Paying your bills when you’re supposed to is a guaranteed way that you can build a solid credit profile. Making payments when you’re supposed to shows your level of reliability and trustworthiness to the lender – which leads to easier loan and credit applications.
If you don’t make payments on time, not only are you liable to higher interest rates (because your past record shows that you’re unreliable), but they can also deny your application because they’re able to make the judgement based off your past credit that you’re unworthy of receiving a loan.
Rule #2: Have Multiple Forms of Credit
Having multiple forms of credit shows that you have experience and knowledge in dealings with debt, meaning that you look more reliable and trustworthy to the lender, which leads to better interest rates and easier application processes.
There are many forms of credit, such as mortgages, car loans, credit cards, and even things like monthly terms on appliances or furniture. Ultimately, diversifying your credit portfolio shows that you’re experienced with the process, making you look more dependable.
Rule #3: Always Check Your Credit Regularly
Every now and then, a mistake will pop up on your credit report. Even though these mistakes may not be your fault, it’s still up to you to regularly check for them and act accordingly.
These errors can happen for many reasons, however the most common issues that arise are related to things like debt that has been reported that either isn’t yours or you have already paid, incorrect late payments, and incorrect personal information.
Rule #4: Have A Stable Income
From a borrower’s perspective, the two processes of a loan are receiving it, and then paying back the debt required. In order to pay back the debt, you need a source of income. If a borrower or lender sees that you have a stable source of income (whether that’s through a job or a business that you own), that means you have a stable way of paying the debt that’s owed – which means less risk from the lenders perspective. On the flip side, if the lender sees that you have no stable source of income, it’s not guaranteed that you’ll pay the debt back which can lead to higher interest rates or application denial.
Rule #5: Exercise Patience
Building a solid credit profile isn’t something that happens overnight. The best thing you can do is the basics: start early, have multiple forms of credit, have a stable source of income and make the payments when they’re required.
If you commit to doing these things regularly, and you do them over a long period of time, you’ll have a sound base for a strong credit profile.