Why it's Important to Establish a Good Credit History
Your credit history
will affect your life in more ways than simply qualifying for loans and getting
the best interest rates. For example, did you know that your credit history will
affect how much you pay for insurance? Did you know that future employers could
look at your credit history in order to determine whether or not you are a
responsible person?
Because your credit history plays such a vital role
in future financial matters, it’s essential that you establish a good credit
history. As a young adult, now is the perfect time to get started.
First,
do you have a bank account? If not, get one. While checking accounts do not go
on your credit history, they are important financial tools that will assist you
in establishing good financial habits.
Apply for a low interest credit
card with a low credit line. Low credit lines ensure that you won’t accidentally
get too far into debt. Use the credit card responsibly and don’t overextend
yourself. This is absolutely essential. Only use the credit card for purchases
that you can pay off in full when the bill arrives. Not only will you build a
good credit history by paying your bills off, you will build good financial
habits.
When your bill arrives, pay it in full and pay it on time. Late
payments count against you. If you’re a little short and can’t pay the balance
in full, pay as much as you can. Never simply pay the minimum balance or it will
take forever to reduce your debt.
Another way to establish credit is by
using store credit and paying off a loan. For example, if your car needs a new
car stereo, consider using the store credit for the purchase. Try for a fairly
short term loan that you can afford and ask your parents or another trustworthy
adult with established credit to co-sign if needed. This won’t be a huge debt
burden for you. Once you’ve been approved and the deal goes through, make sure
to pay your bills on time. This loan will show up on your credit report along
with your payment history. In addition, when you pay off the loan, your credit
history will show that you have successfully managed the financial
responsibility of a loan.
The key to building a good credit history is
showing financial good faith. Do you pay your bills promptly? Are you always on
time paying them? Use financial tools such as online banking and online bill
paying to set up regular automatic payments as well as keep track of all of your
accounts. For example, if you owe $25 per month on that car stereo for the next
ten months, use the automatic bill paying program to set up recurring $25
payments to the lender until the loan is paid off. By pre-arranging the bill
payments, you can be sure that you won’t be past due or miss a
payment.
Take the time and care to slowly build a good credit history. In
the future, you’ll be rewarded for your efforts.
