How can I get a good credit history?
If you’re trying to buy a house, get a car loan, or even rent an apartment, your credit history can make or break the deal for you. This is because lenders and landlords want to know whether you’re a ‘good’ risk or a ‘bad’ risk, and they use your credit rating to help them to decide.
Building a good, solid credit rating is actually not such a difficult thing to do – provided that you pay attention to your bills and your budget.
The best place to start is to request a copy of your credit report. You’re entitled to receive a free copy of your credit report once every twelve months from one of the three major credit-reporting agencies: Equifax, TransUnion and Experian. You can request your credit report at AnnualCreditReport.com.
Your credit report is essentially a breakdown of your financial history, and lists your accounts, balances and repayment behaviour for each debt or bill you’ve had. It is important to note that your credit report is not your FICO credit score, the three-digit rating that lenders and employers use to determine your creditworthiness. They will often consider your credit report during the evaluation process, however, so it’s an important document nonetheless.
When you receive your report, carefully check to see that the information shown is true and correct. Occasionally, credit reports include errors, such as accounts that don’t belong to you, or overdue balances that you’ve already paid. If you find any transactions that you believe are incorrect, promptly contact the credit agency and ask them to investigate the errors.
On the plus side, any negative information including late payments, delinquencies and judgments against you will generally drop off your credit report after seven years. So, even if you’ve got a checkered credit history, you will have the opportunity to repair it. Bankruptcies can take up to 10 years to fall off your report, but they do disappear eventually as well.
Your best strategy, however, is to avoid getting any black marks against your name in the first place. To do this, make sure you pay all of your bills on time, from your phone bill to your gas and electricity account to your weekly rent – and if you have credit cards, ensure that at least the minimum balance is paid each month. And never, ever get credit on behalf of another person, in your name only – it almost always ends in disaster!
Even the smallest blemish on your credit record can hurt you down the track, so it’s a good idea to request a copy of your credit report at least once every 12 months. If you need a gentle reminder, consider attaching the task to an existing annual event – for example, end of financial year. You’ll be preparing your tax return anyway, so you might as well make April your month to get on top of all of all your financial responsibilities!
To build a good credit history, consider these additional tips:
1. Some people believe it’s best not to have a credit card at all, so that there’s no possibility for late fees and missed payments to blemish their credit rating. Think again: most lenders want to see a credit card balance transfers and debt repayment, so if you’ve never had a credit account of any kind, you’ll likely have trouble getting approved for a home loan.
2. Open plenty of checking and savings accounts. These bank accounts help to establish you as part of the financial community. From a lenders perspective, this demonstrates that you’re responsible about your finances, as you have a checking account to pay bills, and a savings account to help plan for the future. Opening a bank account is something that even under 18’s can do to help establish their finance profile, as they’re too young to establish credit in their own name.
