Establishing good credit
Establishing good credit is an essential part of any American’s life. Without good credit, a person can miss out on many important parts of life, like buying house.
Good credit is essential to getting approved for a mortgage transaction, and not having great credit can actually prevent you from buying a house altogether.
But everyone knows that developing first-rate credit is not necessarily the easiest thing to do, and it actually takes some hard work and financial discipline.
Before you even think about getting a good credit score, it is important to establish a credit history all together. It is surprising how many people in the U.S. do not even have a credit history at all. But, looking on the bright side, it is always easiest to start from scratch.
An article posted on about.com by Nance Kelly, “7 tips to establishing credit,” gives readers some smart ways to establish and build a good credit history.
“Building a good credit history is the first step in getting credit. For millions of young people who are just starting out, or for people who are starting over after a bankruptcy, or even for people who have moved to the US from a foreign country, getting approved for a credit card, auto loan or mortgage can be difficult. If you don't have an established record of making payments or managing credit, lenders don't know whether you're reliable; if you've had previous financial difficulties, lenders will view you as a poor risk, and you'll either be denied credit, or charged higher interest rates until you can prove your creditworthiness.”
So, as you can see the benefits to establishing good credit are numerous. Not only do you miss out on many important things without credit, but you can also be charged higher interest rates in pretty much any loan you take out.
To obtain a credit score at all, you must have had credit for a minimum of six months and at least one of your accounts has been updates and reported on within the past six months.
The first thing you can do to establish credit is to open a checking and savings account, and then open a secured credit card. Even though your checking and savings accounts will probably not be reported to the credit bureaus, they are a good way to start developing good money spending and financial habits.
“One of the best ways to build a credit history from scratch is with a secured credit card. You deposit a set amount of money in a bank account at your lender bank, and that amount usually becomes your credit limit. There's no risk to the issuer since if you default on your payments, it will simply deduct the money it is owed from the bank deposit securing your credit limit.”
“You will build a credit history just as fast with a secured credit card as with a regular credit card, and secured cards aren't reported any differently than regular cards. After making payments on time for a year with a secured card, you should be able to "graduate" to an unsecured card.”
After you have opened a credit card account, it is essential that you pay every single bill on time. If you don’t you could cause blemishes on your newly acquired credit score.
“A record of consistent, on time payments will help you establish a good credit history. Cable TV, utilities and Internet service probably won't get reported monthly to the credit bureaus(many cell phone providers do report to the credit bureaus), but if you make one late payment, you may find that showing up on your credit report, so make sure you pay all your bills on time, even the ones that aren't usually reported.”
These tips should put you well on your way to establishing good credit.
Back to Articles
