One of the most important keys to good financial management is building and maintaining a good credit rating. Credit ratings are determined by credit agencies using a person’s previous payment history on things such as credit cards, car payments, and mortgage or rent payments.

One of the trickiest things about establishing a solid credit rating is that many lenders will not issue a loan to someone who doesn’t have a credit history. In other words, when you are first starting out trying to establish a credit history, you have to find a lender who is willing to take a chance on you. This can be the most difficult part of getting started.

Tips for Building Good Credit

Once you have that first credit card or car loan, it is important that you make every effort to stay on track with your budget. If you don’t already have a budget worked out for paying your bills and allowing for some spending money, then take the time to create one. The following tips will also help you to establish and keep a solid credit rating.

• Keep your credit limits in mind – you should always be aware of what your credit card limits are. Stay within them, but also try to avoid running up balances that are larger than you can comfortably afford to pay off.
• Choose credit cards wisely – apply for cards that offer rewards for making payments on time. Also, don’t apply for too many credit cards. Having too much available credit can be just as harmful as not having enough.
• Review your credit report – ideally, you should do this at least once a year so that you can keep track of what’s going on. This is also an excellent way to make sure that everything on your report is accurate.
• Be proactive – if you find yourself having difficulty making payments each month, contact your creditors to discuss the situation. Avoidance is never a solution; it will only make your problems worse in the long run.

Increasing your Credit Score

One of the best ways to increase your credit score over time is to carefully track your debt to income ratio. Many financial professionals recommend that people keep their debt ratio at no more than 20 percent. Debt to income ratios are calculated by taking your total monthly debt payments (not including rent or mortgage payments) divided by your monthly net income.

While keeping your debt to income ratio will go a long way towards helping you stay on track financially, there are some other things you can do that will help to improve your credit score. If your interest rates seem high, try asking your lender to decrease them after you have consistently made regular payments for a while.

Lenders are most likely to comply with such requests when consumers show great responsibility in managing their credit. This means that you will need to ensure that you don’t get too far in debt, and that you consistently pay your balances down within a relatively short amount of time.