The financial world revolves around credit . Even the biggest companies in the world rely on credit in order to get proper financing. If credit is very important for the biggest companies in the world, it is also vital to individual consumers. If you want to make sense out of your finances then you need to learn all you can about credit. Credit is what would allow you to make the biggest purchases in your lifetime. It is what would allow you to afford a house or a car.
The Importance of Your Credit History
If you want to know more about credit and what it can do for you, then the most important thing to know is your credit history. Your credit history is how you handled credit in the past. It is determined by your credit report and by your credit score. Your credit report is a compilation of how you handled your credit in the past. All your payments and missed payments are compiled by the credit reporting bureaus and the credit companies in turn check those information from them. Your credit score is computed based on what is contained in your credit report.
When you apply for credit, whether that’s a new credit card or a loan, the creditor will check with the credit reporting bureaus to get your credit report. If you have a bad credit history then chances are that you might not get a good deal for your new credit. There is even a chance that you will not get an approval. This means that your credit history will play a significant role in personal finance. You have to be aware of what would affect it and how you can take care of it.
There are millions of consumers who have no credit history. This means that they have never applied for a credit card or for a loan. They always pay for their purchases in cash. While relying on cash for most of your purchases is okay, that becomes a problem when you need to purchase a house or a car. Those are the things that you might not be able to pay for in cash. You need to rely on credit to pay for those. That’s why you would need to have a good credit history then.
Here are some of the things that you need to do in order to build good credit:
Check Your Credit Report
There are three main credit reporting agencies in the United States today. Those are TransUnion, Equifax and Experian. Your creditors will turn to them whenever they want to get copies of your credit report. If you have never applied for credit before then that means you should have no record with any of these credit reporting agencies. Before you apply for a credit card or go to a bank, you should get a copy of your credit report from all three bureaus. That way you can be sure that there are no false credit reports under your name.
There are thousands who become victimized by identity theft each year. If you were unfortunate enough to have been targeted by those who commit those crimes, then you can have a bit of a problem. If you find a false credit report under your name then report it immediately and have it fixed. It might take a long time to have things cleared up.
You should check your credit report regularly not just when you are building your credit, but when you have taken out loans and credit cards. There is still a chance that there might be some errors on your credit report if you are not very careful.
Open a Bank Account
Most creditors use credit reports as the quickest way of checking the creditworthiness of a borrower, but there are other means that you can use in order to build your reputation. One such method would be to open a bank account. It can be used as a proof that you are financially responsible and that you can take care of your own finances. It is better if you have the account open for a few years already. That would show that you have some experience when it comes to handling your own money. It is also a way of proving that you have a steady income coming in regularly. You have to be careful about using checking accounts though. Bouncing a check can have a very negative impact on your credit.
Always Pay Bills on Time
There are several factors used in computing for your credit score and there are several ways used in coming up with that number. The most popular form of the credit score does not include bills payment as a factor for the score, but that does not mean that you can ignore the timely payment of your bills. Things are changing. There are new scoring systems that incorporate bills payment as a factor in the credit score. Some creditors might consider timely bills payment as a vital aspect or your credit history.
Get a Co-Signer for Your Loans
There is another way that you can try if you are building credit from scratch. You can always get a co-signer. A co-signer would be someone with an established credit who would agree to be equally responsible with you regarding the loan. The lender will then look at the credit history of the co-signer. It is best to get a co-signer who belongs to your family, someone with the same surname. That would show that you have an established relationship with that person. Remember that you will only be as good as the co-signer that you will be getting. Try to get someone with a really good credit history. It would help if you can check the credit report of the person that you want to get as a co-signer.
A Secured Credit Card
When you are building your credit you have to be ready and willing to spend money. One way that you can establish your credit is by getting a secured credit card. A secured credit card is backed by collateral and in this case that comes in the form of a deposit that you make when you open the account. So when you use the card and you do not pay, then the bank can use the deposit. That can be a great way of establishing your credit.
Move on to Your First Credit Card
When you have proven that you can pay regularly with a secured credit card then it is time that you move on to a regular credit card. That is the fastest way that you can establish your credit. After that you can move on to bigger forms of credit if you have to. You should be careful about how you use your credit card though because that is where a lot of consumers encounter problems. You have to be responsible on how you use it. You should pay more than just the minimum amount every month.
Building up credit is not the easiest thing in the world. But if you are careful and you keep your head with what you are doing then there is no reason why you should not be able to establish a good credit quickly.