Credit History: Tips to Establish and Improve Your Score
Your credit history affects all aspects of your financial future. From insurance premiums to qualifying loans, even your employment opportunities, your credit history will follow you through your entire life. Establishing a great credit history or improving your current history will provide you with limitless possibilities.
Having a good credit history affords you lower interest rates, better repayment terms, and an easier time applying and receiving loans. With a poor credit history, it is more difficult to find viable credit, you are subjected to higher interest rates, and will pay higher premiums for insurance. Your credit history is a reflection of your track record for borrowing. Credit history tells lenders if you can repay a loan on time or not. When you apply for a loan, the lender reviews your credit history using one of the three major reporting bureaus. Equifax, Experian, or Transunion keep record of your credit score which your lenders supply. Your credit report shows how much you borrow, when you borrow, and your repayment history. New lenders use these reports to determine if you are eligible for new loans, credit cards, and interest rates.
Start by establishing good credit. Establishing good credit takes time, patience, and wise decisions. You can do this if you have never borrowed before. Repairing poor credit can also improve your credit history. The key is to start with good credit. If you don’t, it will take much longer to rebuild your credit. Following the tips below will help you establish good credit or repair poor credit.
Open Checking Accounts
Learning to manage your money starts with a good banking history. You are forming a relationship with a bank that will help you in securing credit in the future. Manage your account wisely, avoid overdraft fees, and review your account activity frequently. Most checking accounts offer cashback savings on certain purchases and tips on how to better manage your spending. Use all the tools at your disposal to maintain your account and build a relationship with your bank.
Take out a Secure Credit Card
Secured credit cards are a great start for new borrowers. You submit a deposit equal to the card limit in exchange for the credit card. The limit is often small to begin with and can be increased by making timely payments. The deposit is collateral for the credit and the bank can use the deposit to pay your debt if you default on the repayment terms. A secured card can be used the same as a regular credit card. You can pay off the entire balance each month or make the minimum required payments. Be sure to make all your payments on time! Late payments will raise your interest rate and cost you late fees–both will damage your credit history.
Apply for a Gasoline or Store Credit Card
Most gasoline cards do not allow you to carry a balance from one month to the next, making them ideal for beginners. You can also take out store credit cards for use at individual retailers. Both cards are easier to obtain than regular credit cards. Gas and store cards have higher interest rates but are an effective way to build credit history.
Co-Sign a Loan
Co-signing a loan will help you to establish credit. For instance, co-signing a loan with your parents on a car. This allows you to build credit history while avoiding high-interest rates. However, you should be cautious about any loan you co-sign. Co-signing a loan makes you responsible for the loan. If the other person is late on a payment, it will show up as a late charge on your history.
Use Your Credit Wisely
Each time you apply for credit, it creates an inquiry on your history. Frequent inquiries will cause lenders to be suspicious of you. Don’t apply for random loans or credit cards. Make your decisions based on interest rates and term conditions. Limit the lines of credit you take out. There is no need to have an excess of credit cards or loans.
The key to establishing good credit is paying all your bills and loans on time. Each late payment counts against you and counts against your credit history. Unpaid utilities, medical bills, and bank overdrafts can cause negative impacts on your credit report and scores. Lenders and credit bureaus are especially interested in your ability to make repayments for your debt. Take the time and make a conscious effort to establish good credit. It will help shape your financial future.
