Having a good credit history is one of the most important things in your financial life. Anyone who has ever struggled with poor credit will tell you how difficult it makes their life. People who have no credit or poor credit have a more difficult time getting loans but they also may have a harder time doing other things like renting a place to live. These days your credit history is checked for a long list of transactions because it indicates whether or not you are someone who pays their bills on time.
So, even in cases like renting an apartment where you are not actually borrowing money from someone your credit history will come into play. On top of that, your credit history dictates what type of rates you will receive when you apply for loans or other forms of credit. Having a good credit history can mean the difference of hundreds or even thousands of dollars spent on interest.
If you do not have any credit, it is much easier to build a positive credit history then it is to repair one that has been damaged. That is why it is so important that you constantly remain vigilant when it comes to maintaining your credit file. No one cares more about your credit history then you do, so you should absolutely make it your business to stay aware of any potential pings to your credit file and your current credit score.
Tips For Generating A Good Credit History
Get a credit card while you are a student – In order to start establishing credit you first have to own a credit card. While you are a student there are some very good deals available to you that include low interest rates and zero annual fees. In addition to that the credit card companies are more willing to issue you a card while you are in school even though you make very little money as opposed to after you graduate when you are looking for a job.
Get a secured credit card – If you are not a student you might consider getting a secure credit card. These cards are easy to be approved for and work in the same way as standard credit cards. The only difference is that you load them up with funds instead of actually using credit when you make purchases. After a year or so you should be able to switch to a standard credit card.
Get a store credit card – Store credit cards are not the best cards to own because the typically have higher interest rates and less functions then a regular credit card. However, they are sometimes easier to get and meet the task of building your credit file. Just be careful of spending too much on these cards due to the high rate of interest.
Try to get someone to co-sign on a credit card with you – If you absolutely cannot get approved for a credit card on your own, a co-signer might be able to help. Your parents or other family member might be willing to co-sign for you so that their credit history is taken into account, making it more likely for you to be approved for a credit card. Keep in mind that the co-signer is also responsible for the bill so if you miss payments or default in some way it will not only impact your credit history but theirs too.
Approach your bank for a credit card – Most banks offer credit cards that are backed by the big three providers Visa, MasterCard, and American Express. If you have a good relationship with your bank and have maintained your accounts adequately chances are you can get a credit card from them. You will have an advantage because they know you and your spending habits, unlike another company who will just look at your credit score or lack of credit history.
Use your credit card wisely – The rule of thumb when you are starting out is never to spend more than 30% of the spending limit on your credit card. Do not be fooled into thinking that a card issuer gives you a limit based on what you can afford. Only you can determine what you can afford to spend, so do not give in to the temptation to max out your credit card right away. You should only spend what you can afford to pay back in full each month on your card. Credit history is built by paying bills on time, not by paying interest fees for carrying the bill over from month to month.
Spend on the credit card on a regular basis – In order to get your credit activities reported to the credit agencies you have to use your card regularly. This probably means using your card for convenience, not for credit. That is a perfectly reasonable thing to do, as long as you track your spending so that you can always pay the bill in full at the end of the month.
Pay your bills on time – The fastest way to ruin your credit history is to neglect to pay your bills. If you have had trouble with online bill payment in the past you might consider setting up a direct draft from your cheque account to your credit card bill to ensure that your payments always get there in time. If you are going to have a problem paying the bill, contact your credit card provider and talk to them about it instead of just missing the payment.
Building a good credit profile is easily one of the most important financial steps you will take in your life. If you are working at it you will see how easy it is to keep your credit spending in check so that when the time comes for you to get a loan for a home or a car you will get the best possible rates and terms.
Timothy Ng is an experienced personal finance writer, specializing in credit card comparison. Check out his guide to credit card debt where he will step you through the process of finding the best credit card.