Steps to Establishing Good Credit History
1. Open a bank account.
Open a checking or savings account - or both.
2. Gradually apply for credit.
Apply for credit gradually through retail store credit cards, a major bank credit card or a gasoline credit card, if you believe your budget can handle the financial load. Don’t apply for more credit than you can manage. A credit card establishes you with credit as soon as your application has been approved.
3. Make regular payments for the products or services you purchase.
Every time you make a payment as agreed to a creditor, you are building a favorable credit history. If you consistently repay your debts, your positive credit history will build.
4. Make payments on time.
Failure to repay the credit extended as agreed is where most people get in trouble. Even late payments affect your credit history. It does not matter that the credit card balance is only $5.00, or that the payment is only one day late or that you pay the late fee. Failure to pay on time will put a black mark on your credit history; a black mark that will last for a year or more.
5. Pay more than just the minimum payment.
This is generally about 3% - 5% of the outstanding balance. While making the minimum payment is acceptable, it does very little - if anything - to reduce your outstanding debt. It is easy with continued credit usage to go deeper and deeper in debt.
6. Make credit work to your advantage...
- Don’t assume that you have a great credit history because of the continuous offers for revolving credit you receive in the mail.
- Make sure that you have credit when you need it for a mortgage or a personal loan - you don’t want to be denied due to poor history or overextension of credit cards.
7. Use credit effectively...
- Determine how much credit you can afford, by developing a household budget - a detailed list of your income and expenses.
- If you find you cannot afford credit purchases, considering your current income and expenses, you should still concentrate on establishing good credit, but continue making most of your purchases using cash.
- Most credit purchases should generally be limited to those that can be paid off at the end of the month.
- Larger purchases should be evaluated based on a usable life and a payment schedule established to assure retirement of the debt.
