Your credit profile, based on your credit history, reaches further into your life than you might think. Your credit history can influence whether or not you are approved for a vehicle loan or credit card. It can even make or break a job offer. In these situations, it’s not a high credit score that’s important. Your credit report establishes not only your creditworthiness but your record of reliability.
When potential employers or landlords pull your credit report, they’re probably not so interested in how much debt you have now, or how much more you could take on. Instead, they’re looking for signs that you’re steady and responsible with your money, and that you repay your debt in a timely manner.
Here’s how to establish a credit history that demonstrates your financial reliability.
Start building credit
Building credit when you don’t have any credit has to be one of life’s most frustrating conundrums. But don’t give up before you even begin; there are indeed ways to get this monumental credit wheel turning. These tried-and-true tactics will help you establish a credit history.
Start with a gas or retail store credit card. It’s usually easier to qualify for a gas or retail credit card than a traditional credit card like a Visa credit card. Use store cards for purchases and pay them promptly. Now you’re building a payment history.
Get a secured or unsecured credit card. Once you’ve established that you can reliably manage a store card, it’s time to apply for a credit card like a Visa, MasterCard or American Express card. Again, make prompt payments and do not exceed your credit limit.
A co-signer can help establish credit. If you’re having trouble getting started, ask a trusted family member or parent if they would be agreeable to being a co-signer to help you establish credit.
Take out a loan under your own name. Once you’ve successfully demonstrated that you can reliably pay your credit card bills on time, and without running up more debt than you can handle, apply for a loan in your own name without a cosigner or co-applicant.
Build financial reliability
A high credit score is the brass ring in terms of factors that will help you get approved for loans and credit: a mortgage, a car loan, a new credit card. But when you’re working to build a picture of a responsible lifestyle, it’s not the number that tells the story. A clean credit history is the name of the game.
Pay your bills on time. It’s not glamorous, but the best way to show financial responsibility is to pay your bills on time every single month: including your utility bills, your cell phone bill, the rent, and so on. Paying your bills on time also prevents you from incurring late fees.
Use your checking account and debit card responsibly and regularly. Frequent overdrafts put a black eye on your financial history. Avoid running your checking account down to nothing on a regular basis. Set a buffer amount ($50, $100, $200, whatever feels safe to you) that you consider rock bottom and won’t go below. It’s like a miniature emergency fund.
Manage your debt responsibly. Once you have credit or loans in your name, keep those payments going out on time like clockwork. Don’t exceed your credit limit or run the debt so high you have trouble paying it back. Anyone checking your credit report for reliability wants to see proof you know and respect your own limits.
Establish your foresight
Savings are where you can really demonstrate financial foresight. As soon as possible, establish an emergency fund to serve as your financial safety net. Nothing matches the security of knowing you have enough money to cover the everyday ups and downs life throws at you.