How to Build Good Credit

In the U.S. having a good credit history is crucial to establishing a life.  Without one, it would be difficult to acquire a home, lease, mobile phone, credit card, car, electricity and even a job.  But how is one supposed to show a history of responsible repayment when no one will give you a credit card in the first place? It’s a little bit of a case of chicken or egg.  That said, do not lose hope. It’s difficult to build good credit history, but not impossible. 

Building a good credit history just means showing lenders you can be trusted to manage money wisely. You can do this by paying your rent and bills on time and setting up a current or savings account and maintaining a healthy, stable balance.  Here are more specific ways to help you build good credit from scratch. 

Maintain a bank account.  
Open up a current or savings account.   Do not overdraw your account or let checks bounce.  Even though bank accounts are not part of your credit history, lenders can use them to screen your credit application. 

Get a secured credit card. 
A secured credit card is like a test credit card that is backed by a cash deposit you make upfront.  The prepayment is used as collateral if you fail to make credit payments.  You use this secured credit card as you would regular credit cards. But by its very nature, a secured credit card should be taken just as seriously.  It’s your first chance to prove lenders you could be trusted.  After a few months of responsible use, lenders may then offer you an unsecured card – a regular credit card without a cash deposit and with better benefits. 

Make a case of on-time payments with your monthly rent. 
The rent you pay every month can be reflected in your credit report.  With the help of rent-reporting services (like Rental Kharma and RentTrack), you and your landlord can sign up for online rent payments, which will be automatically reported and reflected in your credit report.  This will definitely help in building a positive history of on-time payments. 

Make bills payment automatic.
Paying in full and on-time is a practice you develop over time.  Signing up your bills for automatic payments from your bank account every month will ensure you cultivate this habit.  Again, this helps build your case  for wise money management. 

Keep accounts open for as long as possible. 
The ages of your  accounts make up part of your credit score.  The older your accounts, the higher the score.  If you keep opening new accounts, your average account age goes down.  So when it comes to your accounts, keep them few, keep them old. 

Building a good credit score takes time.  But the key here is consistency and building good money habits.  Think of this period as some sort of personal finance training.  Appreciate the habits you build during this period as lifelong lessons and not just a means to an end. 

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