If you want to borrow money, you need a good credit history. The better your credit history, the higher your credit score and the lower your interest rate. You will find that with good credit comes an easier time at obtaining credit.
Both young adults and those starting to rebuild their credit must establish good credit histories. This can often be quite difficult. You may find that without a good credit history, it is a challenge to get a credit card, auto loan or home mortgage.
An established record of making payments towards loans and managing your credit wisely lets lenders know that you are reliable. If you have had financial difficulties, lenders consider that you pose a risk of default. This results in either rejection or higher interest rates.
Don’t believe any company or individual that says you can quickly get a perfect credit history. This simply isn’t true. It is something you have to work at. But the work isn’t hard. It just takes a few wise moves and time.
In order to have a credit score at all, you must have a credit account open for at least six months that has been reported on. Start off on the right foot and you won’t have to worry about your credit score.
The first step in establishing credit is to open a savings and a checking account. There doesn’t have to be a large amount of funds in your accounts, you just need to show that you are financially responsible. This means that you need to make deposits and withdrawals over time. Be careful though, bounced checks send the opposite message. They show that you have a hard time managing your money.
You need to get into the habit of paying your bills on time, every time. This means that you never miss a cable bill, a utility bill or a rent payment. While these don’t usually get reported to the credit bureaus, a late payment or collection will probably show up on your credit report. Pay your bills on time and get into the habit. It will benefit you when you do have credit accounts to make payments on.
A great way to make sure that you don’t miss payments is to set up your bills to be paid automatically. Many companies will automatically withdraw from your account each month. Most banks will set up automatic bill pay for you. But in doing this, you have to keep in mind that they will come out. It is easy to overdraw if your forget about a bill.
One of the best ways to start a credit history is by obtaining a secured credit card. You deposit money into a bank account at your bank, and that amount is your credit limit. The issuer will simply deduct the money owed if you default on your payments. This will build a credit history while teaching you to manage money. It doesn’t matter if you have a low credit limit, the key is to establish a credit history that shows good management. After about a year, you should be able to move on to an unsecured credit card.
Other options for starting off with credit include store credit cards and student credit cards. The limits will usually be low and the interest rates high. But if you pay the balance in full each month, you won’t have to worry about interest. This is the best way to manage your credit cards. Don’t charge more than you can pay in full.
You can also ask that your parents add you as an authorized user to their credit card account. Your credit report will reflect the account’s credit history and will help you establish a credit history of your own. However, keep in mind that if the primary card holder defaults, it will be reported on your credit report.
You only need one or two accounts to establish credit history. Don’t go out and apply for everything you can. Use your credit cards wisely. There is no reason to have more than three credit cards. In fact, one is your best number. Having too many open accounts of one type can damage your score