If you are like most of us, you have goals and dreams, which may include buying a home, a new car, or even taking an amazing trip around the world.
If you are planning to do any of those things (congratulations!), it is crucial to work on building your credit history now when you are young, so when lenders contact the credit bureau, they will see your efforts to establish a credit history and consider you loan worthy. This is the sure-fire way to reach all of those financial goals!
Why Credit History is Important
Everything you want to buy on credit will be based on your credit score. A good credit score will determine whether you will get the loan, the type of loan, as well as what interest rate to charge for the loan. A lack of credit history, however, can cause the lender to deny the loan or cause you to get stuck with a (much) higher interest rate since you are considered to be a “risky” loan.
Here are some of the main reasons why it is important to establish a credit history.
Top Reasons to Establish Credit History
· Having a good credit score is a measure of how “good” of a loan risk you are. It tells lenders that you tend to fulfill your loan obligations.
· Responsibly maintaining your credit history means you will receive approval letters from lenders versus being denied credit.
- Those who have a good credit history will qualify for better loan options and interest rates – saving you potentially thousands of dollars in interest payments.
- Building your credit score to reach over 660 is a sure way to get approval on a mortgage.
What Can I Do to Get a Credit History?
Sometimes it can be tough to build your credit score when you are first starting out and don’t have a credit history. What can you do when mortgage companies, credit cards, banks, and other lenders require this history? Here are a few pointers about how to get started on building your credit history so that you can get loan approvals, including a mortgage for your first home.
How to Build Your Credit History
- Authorized User – Becoming an authorized user on a parent or relative’s credit card that has already established good credit history is a good place to start. Be diligent about making the payments for your purchases and watch your credit score grow.
- Secured Credit Card – Apply for a secured credit card to establish your credit history. The application process is the same as with a standard card. Secured credit cards offer a very low credit limit, and you are required to deposit the amount of the card’s limit for approval. The lower limit means that you won’t get into trouble racking up a large balance, and once you make several on-time payments, it may be converted to a regular credit card.
- Credit Tools – Experian, one of the major credit bureaus, offers a program called Experian Boost, which will allow you to get credit for monthly bills you pay on time. Expenses like phone bills, utilities, and even streaming services can help establish and build your credit score.
- Credit Builder Loan – When lack of credit is a concern, consider applying for a credit-builder loan. This type of loan is designed for people with no credit history as a way to establish good credit and an on-time payment history to prove you are trustworthy for future loans.
Are You Ready to Build Your Credit Without Getting Into Trouble?
Once you have used these tips to start building your credit, it is a good idea to apply for your first credit card. With a little discipline and a conservative-spending approach, you will be well on your way to building your credit and owning a new home, car, or jetting away on the vacation of your dreams!