Take The Necessary Steps To Establish Your Credit

by : Steve Goodman

Do you wish you were debt free and on a road to financial freedom? Whether you have previously had a good credit standing and lost it, or you are just beginning to accumulate credit and establish a credit rating, a few standard concepts will help you in taking some steps in establishing good credit.

When borrowing money and establishing credit, you must be able to prove to the lender these four things:

1)Stability - prove that you can hold a steady job, and that you have lived in the same place for at least 2 years.

2)Ability to repay - Demonstrate that your income exceeds your expenses.

3)Assets - Lenders will look more favorably if you have assets such as a home, car or stocks, etc. that can serve as collateral. A savings account is another asset that looks good to a potential lender. If you set back a little each month, you'll soon have a nice asset.

4)Credit references - You need credit references and a good credit standing, so let's get started.

These four principles will help you establish good credit history, and from this a credit score to evaluate your ability to repay.

To maintain a good credit standing all purchases must be accounted for and budgeted. To be responsible, you will need to prepare a budget from year to year to keep your finances on track; there is no way around it. Obviously you cannot spend what you do not make, so the easiest way to prepare your budget is to list exactly what is coming into your household and where that money is going.

Make two columns on a piece of paper. Title one side inflow and the other side outgo. Under inflow, list all the finances that come into your household; paychecks from employment, part time jobs, side jobs, alimony, child support, everything. Under outgo, make a list of your expenditures, and be thorough. List rent or mortgage, utilities, food, gas, clothing, credit cards, loans, etc. everything that is spent in one month.

When you total each side, the inflow needs to be larger than the outgo. If it's not, then you will have to make some adjustments. It will have to come back into line because you cannot continue spending more than you are making. Think before you spend, and pay off your credit cards, the entire balance, every month. A good credit score is worth it's weight in gold in today's society where everything is bought on credit.