Every consumer needs to learn the right way to balance debt and income to build credit without hurting their score. The same actions that help you develop a healthy credit history can ruin your hard work when applied incorrectly. Follow a path of moderation in your lending and spending to accumulate the credit you need for the biggest purchases in life.

When To Borrow And When To Save

Moneysupermarket.com warns that avoiding loans and credit cards will prevent your credit score from rising. Moderation is the key to growing good credit. Try taking out small loans that account for no more than 30% of your monthly income. Paying off a minor loan every month or two can quickly build up your history. Taking out too many loans, or having a credit card debt higher than 30% of your credit limit, can cause a problem with refused credit later in life.

Try saving enough of your income to cover at least six months of regular expenses including your monthly credit card or loan payments. Skipping payments because of unemployment or illness is easier to avoid when you have a safety net to fall back on. Borrowing more money to cover expenses when your income is disrupted can send you into a spiral of increasing debt.

Decide whether a loan is really necessary or if you can wait a few months to save up the money instead. A new computer or gaming console isn’t worth the extra interest if you use a credit card for the purchase and wait months to pay off the balance. Stick to small purchases that you can pay off within the same month for improving your credit history.

How To Ensure Your Credit Applications Are Approved

A long history of prompt payments and successfully completed loans will convince any lender that you are responsible enough for a mortgage or business loan. Consider your income and the monthly payment before filling out an application. Each lender has a specific debt to income ratio. If you are already spending most of your money on existing loans, be prepared to have your application refused.

People with poor credit can recover by cautiously re-entering the lending world. Look for a lender that specializes in bad credit loans and take out less than $500 to begin. Repay it according to the schedule from the lender, even if you could pay it off a little faster. A record of continuous payments is the fastest way to add points to a low credit report.