How to Build Credit and Take Control of your Finances


Everybody knows that if you want to lend money for a big purchase such as a house or car, credit score is a big factor.  How do you improve your credit scrore and keep it from falling?  Here’s some tips to help you build your credit and take control of your finances.

What is a Credit Score?

A credit score is basically your reputation as a borrower.  It tells the lender how risky it is to lend you money.  The higher your credit score, the easier it will be to borrow money.

Typically credit scores range from 500-800.  Scores of 640 and below are considered subprime borrowers.  Mortgages and loans given to subprime borrows come with higher interest rates and fees.  FHA loans that are often used by people with lower credit scores come with additional mortgage insurance premium fees (MIP) that are paid monthly along with the mortgage payment.


  • Excellent: 750 and above
  • Good: 700 to 749
  • Fair: 650 to 699
  • Poor: 550 to 649
  • Bad: 550 and below

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There are many factors that go into calculating your credit score based off your lending history.  Your history of making payments and the amount of debt are the biggest factors.

What Determines Credit Score?

  • payment history
  • amount owed
  • length of history
  • new credit
  • types of credit used

Ways to Build Credit for Teens and Young Adults

Schools don’t teach kids little to nothing about personal finances and how money works.  As a result many young people end up falling victim to the debt trap.  It is very important for parents to teach their kids how to become more financially intelligent.

However, the problem is that many of the parents weren’t taught much about personal finances either.  Some of them have learned the hard way through their experiences in life but others don’t see a lot of the problems because that is what America has become.  A debt driven society.

Developing financial intelligence is a concept that is talked about in the book Rich Dad Poor Dad by Robert Kiyosaki.  In the book, he talks about how the rich teach their kids about money and develop their financial intelligence.  Whereas, the poor do not and have a very opposite viewpoint about how money works and how to make money.  If you haven’t read it yet it is a very interesting book to read.

Become an authorized user on someone elses card.  Also you could use a credit-builder loan or secured credit card.  Teens can use a card that is monitored by their parents to start building credit so that they can upgrade on a car loan or house as an adult.  Of coarse a low maximum credit limit should be on the card and they must be taught to spend responsibly.

Know How Your Credit Will Affect Future Plans

A lot of people don’t think about how their credit will affect their ability to get a mortgage.  Often times a pre-approval from a lender will be turned down once new credits are added.  For instance, if you get pre-approved for a single family home for $300,000 and then go buy a new car it will dramatically affect your ability to take out a mortgage on a house you were looking to buy.


Know the Terms

Banks and other credit institutions will hound people with offers that try to lure them into debt.  They try to lure people into “debt traps” were they take on more and more debt to live beyond they’re means.  It might sound good at first to create a better life using this cheap money until you realize that you are in a hole you can’t climb out of.

Credit cards with 0% promotion periods and 2% cashback sound too good to pass up.  These cards can be great for building credit IF you can control your spending and pay off the balance before the promo period runs out.  However, many Americans cannot avoid the temptation and get addicted to cheap money.  They spend just because the funds are available then later regret the purchases once they are stuck with the interest payments.

You should read and know the terms of the agreement.  If you don’t understand something ask your lender.  Know the type of loan, length of the loan, promo periods, interest rates, and fees.

Don’t Borrow to the Max

Only borrow an amount that you can easily payback.  A credit card should only be used as a last resort very sparingly,  Take out small amounts of debt each month that the balance can easily be paid back in full.  Just because you have the credit available doesn’t mean that you have to use it.

Debt should only be used if it can be paid back quickly.  A lot of times debt is used to leverage a business into a position of growth.  In cases where debt is used as an investment strategy the debt can be paid off once the business is in a better position.  However, without a good investment strategy, the risk could end up costing the business more money.

Get Out of Debt and Use Your Savings Instead

Pay debt off as quickly as possible.  Make extra payment whenever you have extra funds available.  The goal should be to have no debt.  Instead, you should strive to have a savings account that you can use instead of credit.  A savings account gives you interest instead of taking it.

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