Benefits of having a good credit rating

Establishing and maintaining good credit is very advantageous to your financial well-being. A good credit history is important not only when you are applying for a credit card, or requesting a credit limit increase, but it is also important in many other areas. Obtaining all types of loans depends, in large part, on your credit history. If you take care of your credit rating, then one day your good credit will reward you by allowing you to obtain the desired mortgage for your new home, a car loan, a small business loan, or larger loan limits so that you can use other people's money (the lenders' money) to your advantage. When you are applying for a new job, some employers may request your credit report from credit bureaus to help them in deciding which job applicant they want to hire. However, employers must first obtain your written permission before they can obtain your credit report. Even looking for a new place to live or to open your new small business often requires having a good personal credit history, as property owners sometimes check your credit history before they rent you an apartment, a house, or a small business office.

Having credit cards for their convenience and for building a good credit rating are not the only ways you can derive benefits from them. Credit cards can even save you money. Many credit card companies offer a variety of reward programs that will save you money just by using their credit cards. Depending on the credit card, some benefits may include insurance, travel benefits, car rental benefits, discounts for certain merchandise, 'cash back' programs, and so forth. In addition, if your credit card has a Grace Period, and you always pay your balance in full and on time, you are using somebody else's money for free for a period ranging from several days to several weeks, depending on the length of your Grace Period and the date you made your purchase (see the comparison tables on our website for benefits and reward programs offered by the listed credit cards).

Establish and maintain a good credit rating

Credit bureaus keep track of your credit history. When you are applying for any type of loan or credit line, lenders request your credit report from these credit bureaus to help them determine, based on your history of paying bills, whether or not to grant you a loan, mortgage, or a credit card. The best way to establish a good credit rating is by having a credit card that is always paid on time. Always make your monthly payments before the due date. Make at least the minimum required monthly payments if you are unable to pay the whole amount in full. However, for establishing and maintaining good credit, it is not enough to pay only your credit card bills on time; it is also important to pay all other bills according to their agreements. Neglecting payments for utility bills, telephone, pager, student loan, car loan, rent, or other bills has the potential to harm your credit rating. Any late payments will be recorded in your credit history and will remain there for a period of seven years. They will remain in your report even if you later pay the bill in full. Paying bills on time, and according to the agreement, is the best credit reference in your credit report. In addition, make sure you have enough funds in your bank account whenever you write checks. Having too many returned checks may also negatively influence your credit rating. In summary, the best way to protect your credit rating is to pay all bills on time, and have only a few, or no returned checks. This will make it much easier for you to apply for a car loan, mortgage, job, place to live, small business loan, etc. in the future. If your credit rating is not as good as you would like it to be, a credit rating can be improved. Even though most of your history of paying bills remains on your credit report for seven years, lenders place most of the emphasis on the last 12 to 24 months because they know that circumstances in people's lives may change suddenly.

Other recommendations

1. If you often neglect paying on time, you may also be penalized by having increased interest rates on your outstanding balances. Increased interest rates mean higher finance charges on your outstanding balances.

2. Try to avoid exceeding your credit limit. Exceeding your credit limit may be possible with some issuers, but if you do that you may be charged ‘over the limit' fees and your credit rating may also suffer.

3. Make sure you are aware of all potential transaction fees and other charges that banks and ATM owners may charge. These small fees can add up in the long run.

4. Do not make your credit card payments from the money that is ‘left over' from your paycheck. Pay your credit card bills and other debt obligations first. By paying your bills on time, you will protect your credit rating and creditors will value you as a responsible borrower.

Banks love responsible borrowers. Borrowers are the ones who create banks' profits. Banks are searching very hard for people who they believe will follow a loan agreement and pay back borrowed money on time. If banks see you as a responsible borrower with a good credit history, you can rest assured your dealings with banks will be much easier whenever you need them in the future.