A line of credit is your ticket to paying for goods and services you don’t have the money for, but still need to pay for. Sometimes, you’re in a bind, and not having enough money just isn’t an option. If you have to resort to using credit, your initial interactions with lenders will have an impact on your financial future. Here are the first four steps you’ll want to take to safely borrow from lenders, starting today, when you’re ready to make a change.
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Establish a secure source of income first
From unexpected expenses to late payment fees, having a secure source of income is your ticket to improved borrowing. Lenders almost always prefer to work with consumers whose employment background they can verify. Therefore, it pays, literally, to have one or more solid sources of income before even considering applying for a personal loan or credit card. Browse among the best places to work, and you’ll see opportunities in Real Estate, Tech, and Consulting leading the list of best jobs to work for today.
Apply for one credit card at a time
Whenever you apply for a credit card, there’s a good chance the creditor may do a hard inquiry on your credit report. A hard inquiry can show up on your credit report for years, and having too many can reduce your score, ultimately increasing your interest rates while reducing your potential to find available lenders. Apply for one credit card at a time and allow several weeks or months to pass before applying for another. This process will lessen the impact the hard inquiries have on your credit score.
Keep your credit utilization rate low
Your credit utilization rate refers to the amount of credit you use at once across all of your lines of credit. A line of credit will serve you well in the short term, but if you spend too much of your credit at once, you’ll present yourself as a risky borrower to lenders. Additionally, racking up purchases on credit cards will only make it harder for you to keep up with your payments. Better to narrowly keep your credit utilization rate below 30% to increase your chances of getting the best loan rates in the near future. The last mistake you want to make is to max out your credit card when you don’t have to.
Pay more than your minimum balance
The more debt you carry, the more of a potential credit risk you are to lenders. But paying more than your minimum balance will have a greater impact than just eliminating extra interest fees. You’ll also pay off debt at a much faster rate, a process that allows you to purchase everything from home renovations to emergency medical services, and still have plenty left over for groceries. Often, with safe borrowing, your mindset while using your credit is as important as how you spend, as your attitude about borrowing will ultimately be reflected in your spending choices, anyway. Paying more than your minimum balance will reduce your chances of having to live paycheck-to-paycheck. If greater financial freedom appeals to you, then start paying extra every month on your credit card statement.
A line of credit should represent an opportunity for you to build upon your life. Borrow responsibly and safely, and you’ll show lenders that you’re trustworthy and reliable. Whether you need credit for major purchases or you like having the extra cushion you can count on, think smart. These four smart tips will make sure you always look great in the eyes of lenders.