Establishing good credit
By Melissa Wirkus
Establishing good credit
is an essential part of any American’s life.
Without good credit, a person can miss out on many
important parts of life, like buying house.
Good credit is essential to getting approved for a
mortgage transaction, and not having great credit
can actually prevent you from buying a house altogether.
But everyone knows that developing first-rate credit
is not necessarily the easiest thing to do, and it
actually takes some hard work and financial
discipline.
Before you even think about getting a good credit
score, it is important to establish a credit history
all together. It is surprising how many people in
the U.S. do not even have a credit history at all.
But, looking on the bright side, it is always easiest
to start from scratch.
An article posted on about.com by Nance Kelly, “7
tips to establishing credit,” gives readers
some smart ways to establish and build a good credit
history.
“Building
a good credit history is the first step in getting
credit. For millions of young people who are just
starting out, or for people who are starting over
after a bankruptcy, or even for people who have moved
to the US from a foreign country, getting approved
for a credit card, auto loan or mortgage can be difficult.
If you don't have an established record of making
payments or managing credit, lenders don't know whether
you're reliable; if you've had previous financial
difficulties, lenders will view you as a poor risk,
and you'll either be denied credit, or charged higher
interest rates until you can prove your creditworthiness.”
So, as you can see the benefits to establishing good
credit are numerous. Not only do you miss out on many
important things without credit, but you can also
be charged higher interest rates
in pretty much any loan you take out.
To obtain a credit score at all, you must have had
credit for a minimum of six months and at least one
of your accounts has been updates and reported on
within the past six months.
The first thing you can do to establish credit is
to open a checking and savings account, and then open
a secured credit card. Even though your checking and
savings accounts will probably not be reported to
the credit bureaus, they are a good way to start developing
good money spending and financial habits.
“One of the best ways to build a credit history
from scratch is with a secured credit card. You deposit
a set amount of money in a bank account at your lender
bank, and that amount usually becomes your credit
limit. There's no risk to the issuer since if you
default on your payments, it will simply deduct the
money it is owed from the bank deposit securing your
credit limit.”
“You will build a credit history just as fast
with a secured credit card as with a regular credit
card, and secured cards aren't reported any differently
than regular cards. After making payments on time
for a year with a secured card, you should be able
to "graduate" to an unsecured card.”
After you have opened a credit card account, it is
essential that you pay every single bill on time.
If you don’t you could cause blemishes on your
newly acquired credit score.
“A record of consistent, on time payments will
help you establish a good credit history. Cable TV,
utilities and Internet service probably won't get
reported monthly to the credit bureaus(many cell phone
providers do report to the credit bureaus), but if
you make one late payment, you may find that showing
up on your credit report, so make sure you pay all
your bills on time, even the ones that aren't usually
reported.”
These tips should put
you well on your way to establishing good credit.