It is important to get have a good credit record especially for those young adults who want their first car, or a new home. And the lack of credit history can be a problem. Luckily there are quick ways to build good credit and establish a positive credit history. Responsible financial habits are important.
Here are just a few ways your credit score is used and why you need to build your credit fast:
- Credit Card Companies – Credit card issuers use your credit history to approve or decline applications. Once you are approved, a credit score can determine how high or low your credit limit is, as well as the interest rate that will be payable. Similarly, if you need more credit to purchase higher-priced items, you may need a credit limit increase.
- Home Loans and Mortgages – It is very likely that these will be the largest purchases you’ll ever make. Due to the amount of a home loan, a higher interest rate due to a low credit score or bad history can cost home buyers tens, if not hundreds, or even thousands more in interest payments.
- Getting A Job – Not surprisingly, many employers check your credit score to determine your financial habits. The idea is that a financially responsible individual who manages his/her own finances well is likely to be a better employee – this may or may not be the truth – but making judgements based on such perceptions is a fact of life!
- Business Loans – Buying a business can be a way to gain financial independence. Having no or bad credit can be the difference between the ability to buy a business and being forced to pass up an incredible financial opportunity.
You now know why you should build up credit, but how exactly do you do that?
Your Job
It starts with your job. In order to build credit, you must have a stable income and for most people that means getting and keeping a job. Whether the job is part or full time, an employment history is the first step to building credit!
You should remain employed at your job for at least a year. Jumping from job to job causes your income to be unstable, making it more difficult to get credit.
Apply for Credit Cards or Secured Credit Cards
Debit cards do not report to credit bureaus and will not build your credit history.
Using a credit card, responsibly, will improve your credit score and help build your credit history. Credit card companies make regular reports to credit agencies and can improve your credit score and establish a payment history.
A secured credit card has a credit limit equal to the amount in a savings account that is used to ensure the principal of the loan will be paid if the account holder defaults on the payments.To withdraw the money in the saving’s account the card must be paid off and cancelled. This can be used by people with bad credit or no credit with one aim only – to improve your credit so you can access regular credit cards etc.
Like other credit cards, secured cards have monthly payments that must be made on time to build a good credit history. The best strategy may be to use the card only for essential monthly expenses and to pay it in full each month. There are other methods of building your credit like paying into savings schemes which act as a credit card does in tersm of building your credit history. Ask us for more details.
Interest rates on secured cards and credit cards can be high and by paying the card off each month, cardholders avoid paying interest while their timely payments improve their credit score and build a good credit history. Alternatively, look for introductory offers of little or no interest on new purchases or balance transfers.
Automate Your Payments
Forgetting to pay your bills on time can damage your credit history. Automating payments insures that all your bills get paid when they are meant to. There are two options for making automatic payments. You can either:
- authorise your bank to release the funds from your checking account on receipt of an electronic bill, or
- you can charge the payments to a credit card and pay off the credit card bill each month.
Do Not Apply for Multiple Loans or Credit Cards
Applying for several credit lines at once will have a negative impact on your credit score and can hurt your credit history. It is better to apply for one line of credit and allow some time between credit applications.
Each time a lending institution pulls your credit report, it lowers your credit score unless you are comparison shopping for a single loan (such as a car loan) and apply through all the lenders within a 30-day period. This would be considered one single inquiry for your credit report.
Request an increase of the credit limit on the cards you already use, instead of applying for new credit cards. Nearly one third of your credit score is based on the ratio of your available credit to your actual debt. If you have a high credit limit with a low debt balance, it raises your credit score.
You should do this even if you do not plan to use the additional credit, since it will improve your score and credit history!
It can take between one and three years of good payment habits to establish a credit history, so be patient. A good credit score can help adults who are seeking full-time employment and housing for the first time since employers and landlords often pull credit reports when considering applicants. If you build your credit history fast and early, you will have a good head start on your financial future!
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