You can think of your credit rating or credit score as the financial equivalent of your personal reputation. It is a measure of your trustworthiness as a borrower. When you borrow money and pay it back on time and keep your rent and other bills current, you improve your score. When you pay your bills late or make partial payments, you damage you score. The higher your score, the easier it will be for you to borrow money at competitive rates to finance your car, home or business.

Excellent credit simply means maintaining a manageable debt load by paying all your bills on time. If you’re applying for a home loan, your total debt (with mortgage, student loan, car payment, credit cards, etc.) cannot exceed 43% of your take home pay. (This is a complicated guideline, which you should discuss with a mortgage loan officer.)

If you’re completely debt free, you can establish and/or maintain your credit rating by using credit cards and paying them off every month. Responsible use and on-time payment demonstrate your ability to manage your bills. Contrary to popular opinion, you do not need to carry a balance.

Here are a few simple rules to build excellent credit:

  • Keep 3 major credit cards: Visa, MasterCard, Discover, etc. More than 5 or 6 is too many.
  • Apply for cards without annual fees.
  • Use each card every month. The amount doesn’t matter; you could charge as little as $5.00.
  • Keep all charges and balances below 50% of the your credit line. Let’s say you have a Master Card with a $1,000 limit. Don’t charge more than $500 on the card.
  • Pay off each card in full every month to avoid interest charges.
  • Pay your bills on time. Late payments are recorded on your credit report and negatively affect your credit rating.
  • Your cards need to be open and active for at least one year before applying for a home loan.


  • You do NOT need to carry a balance from month to month to build your credit rating.
  • If your health insurance refuses to pay for a doctor’s visit, try to settle with your doctor before he files for collection.
  • Car loans and other installment type loans are not ideal for building credit, because they are gone/closed after the last payment.

By maintaining your credit rating, you’ll be able open new accounts and borrow money, when you need it, at reasonable rates.

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