Tips for establishing a credit history
Establishing a credit history is one of the things you will need to do at some point in your life. A credit history is just that - your history of how responsible you are with your credit, such as paying bills on time and how many credit cards or loans you have out.
Why do I need a credit history?
A credit history is important for a number of reasons. First of all, if you're ever going to apply for a loan, be it a mortgage, a car loan, or any other type of loan. Your credit history will show the lender whether or not you have a history of paying your bills on time; if your credit is good, you're more likely to get the loan. If your credit history shows you have a history of not paying your bills on time or opening too many credit cards, then you might have a difficult time getting a loan, or your interest rate will be higher.
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Establishing a credit history
If you have no credit, there are a number of ways you can go about establishing credit:
- Apply for a credit card. When applying for a first-time credit card, it's best to start small. Apply for a department store card. These generally have small credit limits, which are a good way to start out. In addition, consider applying for a secured credit card from your bank. These allow you to make a deposit to your account and have a credit limit in the exact amount of that deposit, allowing you to build your credit up. If possible, use your credit card a little each month and then pay the balance off at the end of the month. This way, you won't be too bogged down with debt.
- Put utilities in your name. Put your phone, internet, electric, and other utility bills in your name and pay them on time. These are an easy way to build credit, as most people don't let their utilities get late for fear of having their service disconnected.
- Consider a co-signer. If you need a loan but don't have the history to get one in your name, consider using a co-signer. Although it's your responsibility to make the payments, the co-signer assumes liability as well, and the payment history goes on both you and the co-signer's credit. Provided your payments are on time, this is a good way to build your credit as well.
- Use automatic bill pay. If your bank offers an automatic bill pay, it's a good idea to take advantage of it. With automatic bill pay, your bills are automatically deducted from your account each month and paid to the lender, which ensures your bills are paid on time. This is helpful especially for forgetful people or those who are particularly busy and is a good way to help ensure your credit history is a good one.
Keep in mind as well that establishing a credit history can hurt you as well as help you. If your payments are consistently late, or if you apply for too many credit cards and charge them to their limit, your credit history will reflect a poor score that will take a long time to repair.
The best way to establish a credit history is through consistently making payments on your bills on time.
