Establishing a credit history is one of the most important things you can do for your future. Your credit history will follow you through your entire life, affecting your loans, insurance premiums and even employment opportunities.
When you have a good credit history, you receive lower interest rates, better repayment terms and have an easier time apply for a loan. If you have a poor credit history, you will have a harder time finding credit, be subject to higher interest rates and pay higher insurance premiums.
Think of your credit history as your track record for borrowing. Your credit history tells the lender whether or not you can repay a loan on time. When you apply for credit, the lender will contact one of three major credit reporting agencies: Equifax, Experian or TransUnion. Each credit bureau keeps a record of your credit history, which is supplied by your lenders. Your credit report shows how much you borrow, when you borrow and your payment history.
Start by establishing a good credit history. You can do this if you have never borrowed money or if you are trying to repair a poor credit history. Establishing credit takes time, patience and wise decisions. The key is to start out with good credit. If you don’t, it will take a long time to rebuild your credit.
Open A Checking Accounts
A good banking history is the first step in learning how to manage your money. You are forming a relationship with a bank that will help you in securing credit in the future. Manage your account wisely, avoiding overdrafts.
Take Out A Secured Credit Card
Secured credit cards are recommended for new borrowers. You receive a credit card in return for a deposit in the amount of the credit limit. The deposit is collateral for the credit. The bank will use the deposit to pay your debt if you default on the card repayment terms.
You use a secured card in the same way as a regular credit card. You can pay off the entire balance each month or make minimum payments. You must make your payment on time. Late payments will not only raise your interest rate and cost you in late fees – they will damage your credit history.
Use A Gasoline Or Store Credit Card
Many gasoline cards do not allow you to carry a balance from one month to another, making them a good choice for beginners. They are easier to obtain than regular credit cards. You can also take out a store credit card for use at a specific retail stores. Gas and store cards have higher interest rates, but are a good step in creating a credit history.
Co-Sign On A Loan
You are able to establish credit by co-signing on a loan. For example, your parents may allow you to co-sign on a car loan. This gives you the chance to build a credit history without being subject to high interest rates. You should be cautious when co-signing on any loan. By doing so, you are responsible for the loan. If the other person fails to make a payment, it will show up on your credit history as a late payment.
Use Your Credit Wisely
Don’t randomly apply for credit cards and loans. Make your decisions based on interest rates and terms. Each time you apply for credit, an inquiry is noted in your credit history. If you have too many inquiries, lenders will become suspicious of you.
The key to establishing a good credit history is to pay all of your bills and loans on time. Each late payment will count against you. Unpaid medical bills, utilities and bank account overdrafts can also negatively impact your credit report and scores.
Lenders and credit bureaus take a great interest in your ability to repay your debts. Take the time and effort to establish a good credit history. It will help shape your financial future.