How to Establish Good Credit from the Start
June 13th, 2009, Written By: Kerri Randall
When you’re just beginning to establish a credit history, it’s important to create good habits right away. The sooner you fall into positive habits, the easier it will be to manage your debt in the future. It may seem like it’s going to take forever to build credit, but a decent history can be set up within six months to a year.
The best thing you can do is make all your payments on time. If you can pay your balances in full, that’s even better, but at minimum, be on time regardless of how much you can afford right now. When you’ve just opened your first line of credit, your score may be high because you don’t have any negative history. But you also don’t have any positive history, so smaller mistakes like late payments can cause your score to drop rather quickly, and you want to be careful not to start heading down the negative path right out of the gate.
Keep your balances low. You might be pretty excited if you’ve qualified for a high credit limit, but remember, it’s not free money. You’ll be expected to pay back every penny at the end of the month, and if you don’t, you’ll be slapped with interest payments. Rack up enough of those and your debt could rise almost exponentially. If possible, only spend what you know you can pay back when your bill is due. If that’s not an option, make sure you’re not maxing out your card every month. Your highest balance gets reported to the credit bureaus, whether you pay it in full right away or not. If you’re constantly reaching your limit, you appear risky, and your credit score can suffer.
Your score will be used to determine what rates you’ll have to pay for numerous purchases, including cars and homes. The higher your score, the more likely you are to be approved, and the better your rates will be. So be sure to consider the future when you’re starting out. If you aren’t responsible with your credit, you’ll be likely to continue bad habits into the future, and you’ll have to spend extra time turning your history around to raise your score before you bother applying for large purchases.
Above all, be patient. Time is a big factor in building history. The longer your positive history is, the better your score, so don’t get discouraged if you’re not seeing immediate results on your credit report. Negative history is easier to create than positive, so if you continue with good habits from the start, you will notice the payoff when you really need it down the road.
Categories: Establish and Rebuild Credit
