Finance Library: Starting Your Investment Portfolio and Building Credit
It is vital to be in control of your personal finances and to build and maintain good credit in order to get access to some of the most basic things in life. For instance, in order to easily purchase a home, or other major items, you need to have good credit. This is the same when it comes to receiving the best possible rates for whatever it is that you are purchasing and avoiding the aggravation of having to deal with credit repair companies and collection agencies. Additionally, any future purchases you make are made easier with an excellent credit history.
In order to maintain good credit, there are a few things that need to be kept in mind as general rules of thumb:
- Higher income allows for higher debt.
- Job stability shows your responsibility; at least two years on the same job is ideal.
- Having assets available shows that you are able to pay for debt.
- Maintaining low balances and steady payments on existing debt, auto loans and credit cards has a positive effect on your credit rating.
Some of the most common reasons for poor credit include when debts go into collections for being more than 90 days past due; any sort of judgments that have been made on your credit report for not paying medical bills, taxes or other responsibilities; being over extended with the debt-to-income ratio; and making no payments, or late payments, on bills—better known as being delinquent. In order to ensure that you keep your credit intact, in addition to paying your bills on time, obtain an annual credit report and review it for errors and correct them as soon as possible.
In addition to maintaining a good credit rating, there are also benefits of investing in the stock market. One benefit of investing in the stock market is the simple fact that it has the ability to earn you a greater return than putting your money into a bank or Certificate of Deposit (CD). The money in a savings account will earn interest, but it usually ends up being less than the rate of inflation while stock market returns can be unlimited. Another benefit of stock market investing is that some stocks pay a dividend, which simply means that in addition to the appreciation, you can also receive a monthly cash flow. This cash flow may even be enough to support you if you hold enough shares.
When investing, it is important to be educated with the investments you are making. It is a good idea to diversify your portfolio in order to lessen the amount of risk and to ensure that at least a portion of your investments is always doing well. For instance, bonds have a tendency to do well when stocks do not, so investing in both stocks and bonds helps to ensure that you are always earning something. Another way to diversify is to invest in securities that are in the same class of assets, but are not affected by the same type of variables such as airlines, grocery stores, utilities and entertainment companies.
Stock Market Basics
Stock Market Terminology
Diversifiable vs. Non-Diversifiable Risk
Diversifying Your Investments and Portfolio
Building and Maintaining Good Credit
Personal Finance Misc. Resources