In today's financial world, building good credit is mandatory if you want to save money on a loan. A positive credit score will lower the interest rate on large purchases, make acquiring a home loan easier, and lower your car loan payments. The hardest part of building good credit is limiting your spending to beneficial debts and the discipline to not overextend your budget –i.e., rack up a ton of credit card debt.

Here are the seven fundamentals of building good credit:
      • Establish credit by obtaining a loan or credit card.
      • Limit purchases to what can be paid off each month.
      • Make payments on time every month.
      • Avoid too many lines of credit.
      • Do not max out your card.
      • Check the three major credit bureaus to see if your credit report is correct.
      • Keep track of all financial documents to prevent identity theft.

Establishing Credit
Your initial loan or credit card is crucial to building good credit. Part of your credit score is determined by your credit history and, if you do not have a history, you are a risk for lending institutions. The riskier you are to a lender, the higher the rates are they will charge you. Unfortunately, some people think by avoiding credit cards or loans they are being fiscally responsible. True, you won't accumulate debt if you don't get a loan but unless you can pay cash for a home or car, you will need to take out a loan one day. Therefore, it is better to build your credit with a small loan or credit card so that you have a good track record when applying for a major purchase.

Within Your Limits
Now that you have obtained some form of credit, do not assume it is simply free money you can use without consequence. You should carefully budget your expenditures and be certain you have the funds to repay your credit card bills each month. One way to do this is to limit your credit card spending to small-ticket items like gas, clothing or food that you can easily repay at the end of the month.

Payment History
Should you be forced to carry a balance on your credit card, do it wisely. Even a relatively low interest rate for a credit card can still cost you thousands if you accrue a large balance. A $5,000 balance at 18% will cost you approximately $7,000 alone in interest if you only make minimum payments. Nevertheless, making payments on time will reflect well on your credit report.

Lines of Credit
Accumulating too many credit cards will make using them extremely tempting. When you amass debt and your income stays the same, your debt-to-income ratio suffers. Also, lenders look for new lines of credit when you apply for a loan. If you have recently acquired several credit cards, the lender may consider that risky behavior and deny you for the loan.

Maxing out your Credit Card
Another criterion lenders look for is the total debt you have compared to available credit. Maxing out your credit cards shows you not only have more debt but are in danger of overspending; subsequently, resulting in the inability to repay what you owe and possibly leading you to bankruptcy.

Credit Bureaus
Think of your credit report as a car. Your car needs routine check-ups to make sure it's running properly or it could break down unexpectedly. The same applies to your credit. Allowing even a seemingly trivial mistake or idiosyncrasy to go unexamined on your credit history could cause major problems down the road. The three major credit bureaus you should routinely check are Experian, Equifax, and TransUnion. Checking them frequently can help prevent identity theft.

Keep Yourself Safe
It is estimated that over the last five years identity theft has cost nearly 27 million consumers over $5 billion. Thus, it is imperative you protect your confidential information from falling into the wrong hands. Trying to prove your innocence and expunge the detrimental effects of identity theft can cost a great deal of time and money. Unfortunately in most cases, you are guilty until proven innocent when it comes to credit fraud.

You can control your financial destiny by building and maintaining good credit. The benefits of a good credit score can mean you save thousands of dollars on important purchases. However, if you suffer from exceedingly high debt, you should consider a debt-relief option. Waiting even another month can cause your plummeting finances to crash. Due diligence and discipline are required to find and implement a successful financial plan, but good credit is well worth the effort.