How to Safely Build Your Credit History

Building a good credit history is important. If you have no reported credit history, it may take time to establish your first credit account. This problem affects young people just beginning careers as well as older people who have never used credit. It also may affect divorced or widowed women who shared credit accounts that were reported only in their husband's name.

Open an Account

Opening a checking and savings accounts is one of the few things you can do as a minor to start building a financial history. While you can't get a credit card in your own name until you're 18 and can be legally held to a contract, many banks have no problem letting you open an account.

Getting a Credit Card

If you do not have a credit history, you should start to build one. Building good credit is not hard to do if you pay attention to your expenses. If you have a steady income and have lived in the same area for at least a year, begin by applying for a credit card from the bank you have a checking or savings account from. It's important to get a credit card with a reputable institution that reports payment history to the credit reporting agencies. If you have a difficult time being approved because you have bad credit, consider applying for a Retail credit card since those are usually easier to be approved for but they have higher interest rates.

Secured Credit Card

Another option is getting a secured credit card. A secured credit card is one where you secure the card by paying a specific amount in advance. When you use the card, the bill is in effect automatically paid by the amount you've paid in advance. If you still cannot get credit, you may wish to ask a friend or family member with an established credit history to act as your cosigner. Lenders will consider the cosigner's existing credit. The cosigner essentially vouches for you while you build credit.

If you are rejected for credit, find out why. Your income may not meet the creditor's minimum requirement or you may not have worked at your current job long enough. Time should resolve these issues.

When building your credit it's best to open only one line of credit at a time. If you open up several accounts in a short period of time you may appear to not have your finances in order.

Use Credit Responsibly

Once you have a credit card make sure to use it and do so responsibly. You will build your credit history by showing that you can manage your finances by always making your monthly payments on time. Don't max out any of your credit cards. Only make purchases you can afford to pay in full when your credit card statement arrives. It's essential that you pay all your bills on time. You don't need to pay the entire balance each month, but you do need to make at least the minimum payment. Set up automatic payments or reminder systems so that you're never late. It takes just one a missed payment to give you bad credit and it can take seven years for the effects to completely disappear. Paying your bills in full each month is the best way to keep your finances in check and build a good credit history.

Remember to always be financially responsible so your credit score can be as high as possible. Anytime new information is added to your credit report, your credit score can change. A change in your credit score that leaves you with bad credit can considerably affect the interest rates you pay on loans.

Monitor Your Credit

After you build credit, it is essential that monitor your credit report on an ongoing basis. The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies, Equifax, Experian, and TransUnion to provide you with a free copy of your credit report, at your request, once every 12 months. The law does not require the bureaus to give you your credit score.

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