Building a good credit history can be difficult, especially if you have no credit. Establishing credit requires time, perseverance and, most importantly, responsibility. It’s extremely important to build a good credit history, however, as lenders look at an individual’s credit report to determine whether or not to approve a loan. Employers, landlords and insurance companies may also consider a person’s credit history when making decisions. Although building a good credit history can be challenging, the results are well worth the effort!
Steps To Building A Good Credit History
Step 1: Get a Bank Account
As lenders (and landlords) routinely require bank account information to process applications, get a checking and/or savings account at your local bank or credit union. Use your account wisely and be sure to avoid overdrafts to demonstrate that you can effectively manage your money.
Step 2: Get A Steady Job
Most loan, rental or other applications ask about your employment. You need to get a job, and then keep it, to establish a stable employment history. In addition, adequate income shows that you can make loan or rental payments.
Step 3: Get Some Credit
Figure out how you can establish some credit. Depending on your current circumstances, you may be able to qualify for a credit card on your own. If not, consider options below to help you get started.
Get A Credit Card On Your Own
Apply for a credit card based on your individual circumstances. If you are a college student, you may qualify for a student credit card. Some retailers issue store credit cards that will build your credit if the merchant reports to the credit bureaus (always ask). Secured credit cards that require a deposit to cover the credit limit are a good alternative for folks with no other options.
Get Added To A Credit Card Account
If you have a willing family member with good credit, you can become a joint account holder to take advantage of the credit they’ve established. Be careful, however, because no matter who uses the account and/or pays the bills, the account activity (good or bad) will appear on the credit report for all joint account holders.
Get A Co-signer
Again, if you have a willing family member with good credit, you can ask them to co-sign. Lenders may be more inclined to approve your loan application even if you have little or no credit history if someone with good credit agrees to make the payments should you default.
Step 4: Make All Your Payments on Time
Always use your credit wisely, avoid overspending, and make ALL of your payments on time. Any late payments, whether on credit cards, rent, or even utilities, can hurt your credit score and stay on your credit history a very long time.
Step 5: Keep Your Credit Card Balances Low
Once you get a credit card, DO NOT charge up to the account limit. The more credit you have available compared to the amount of credit you’re using, the higher your credit score will be.
Step 6: Monitor Your Credit
Get a free copy of your credit report each year from each of the three main credit-reporting agencies at AnnualCreditReport.com. Make it a habit to check your credit report about every four months (alternating between the three agencies) and correct inaccuracies promptly.
So, what are YOU doing to build and maintain good credit?