How The Young Can Build Solid Credit History

Thursday, July 21, 2011, 2:00 AM | 1 Comment

When you are 63 years old like me, if you have a bad credit score, you have very less time or may be no time at all to improve your credit score. Personally, I have a good credit score, better than 775. When you are young and you want to build a solid credit history, then you can do better than I could if I had a bad credit history.

A good credit score can get you credit when you need it and borrow at the lowest interest rate possible. Not only that, it may also impact your ability to get a job, insurance of any kind or rent an apartment.

While you are young

While you are young and just starting out in your working life, you ought to start working on building up a good to excellent credit score. That will become a part of your financial assets.

If down the road you want to be able to buy a home, you not only have to start saving for the down payment – at least 20% to avoid Personal Mortgage Insurance (PMI) – but you must have a good credit history to borrow the rest 80% at favorable interest rate.

To build up your credit history, you have to be familiar with the three credit bureaus that keep your credit records.

They compile two kinds of information. The first kind is your basic data like age, Social Security number, current and previous addresses, employers and marital status.

The second kind of information they keep is your borrowing and repaying history. That includes credit cards, student loans, automobile loans and mortgages. So you have to make sure that you are up-to-date in your bill-paying. Avoid late fee and finance charges.

Build your credit history

First read the article to know FICO and understand how FICO score works. They show a minimum credit score that is considered the worst and a maximum that is obviously the best. The three credit agencies and FICO seem to have different methods for a mambo jumbo kind of formula they use.

You don’t have to understand the details of either one. One uses the score between 150 and 900 and the other between 350 and 800 or perhaps 850. Your job, should you decide to accept it, is to be as close to the high end as possible.

What’s the use of a credit score?

If you have a good score, you are a lesser and better risk to lenders. They want to be able to lend you the money you want and at the lowest possible interest rate.

A low score, on the other hand, indicates that you may be a bad risk to lenders and others who may request your credit report. In the latter case, either they would refuse the credit to you or would lend you the money but at interest rate that may be the best for the lender but the worst for you.

There are no secrets to building up a good credit score. The first thing is to take your time and start working on it. There is no magic wand to build better credit score overnight.

You gotta spend time but must have determination and discipline for building a good credit history.

1. When you use credit card, pay in full each month before the due date.
2. Steady employment can bring your credit score up.
3. Paying down balances overtime for folks who can’t pay in full every month.
4. Get and use no more than two credit cards.
5. Don’t apply for store credit cards. Applying for new card will automatically lower your score by at least 75 points.
6. Never be late in your payment on any kind of loan.
7. Pay down the loan while decreasing borrowing. Using credit card is borrowing money.

Get a free credit report every year

You are entitled to have one free annual credit report. Get in the habit of getting one every year. The reason is that sometimes there are erroneous data on your credit report.

Your Social Security Number may have been compromised. Your credit card may have been used by someone. Or a wrong data entry may have been made in your credit report. By examining your credit report closely, you have a better chance of correcting entry on your credit report.

The credit history report helps you in protecting your identity and is one way to correct if your identity was compromised.

In a Nutshell
Be aware of your credit report at least every year if not twice, making sure the data on it is accurate.

Always work to improve your credit history. Understand the importance of your report.

All these steps can help you ensure that credit will be available when you need it and at the lowest possible interest rate.

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