5 Steps to Building a Strong Credit History
The world of finance depends greatly on credit. Moreover, aspiring college students, first-time homebuyers and Fortune 500 companies depend on it as well. Credit scores and credit reports are the basis for lenders to make decisions about the creditworthiness of borrowers. These are the two ways of assessing one’s history of credit. Qualification for a car loan, a home mortgage and interest rates are determined by your credit history.
Have you ever defaulted on a loan? Have you always paid your credit card balance on time? All these are featured in your credit history. For new credit seekers, they experience some challenges in securing funds, as they lack the history of credit that borrowers seek. In other words, if you do not have a credit history, how do you qualify for credit? If you are not qualified for credit, how do you build a credit history?
In fact, over 50 million American citizens have no credit history. They have never applied for a line of credit, a credit card or a car loan. In certain cases, paying cash can be efficient for obtaining goods and services, but for more costly matters such as a new home or car as well as college education, securing credit will prove imperative.
Beginning to build your credit history may seem daunting, as you may have more questions than answers. Rest assured, though that below are a few easy approaches for building your credit seamlessly on the road of building your financial future.
1) Establish a Relationship with your Bank
Though there are a bevy of ways to build sound credit, developing strong relationships with your bank is an ideal approach to start. Opening a bank account and demonstrating a long-term relationship can go a long way in securing your first home loan or credit card. It is important to note, that checking and saving account information is not included in a credit report, lenders will consider it when they evaluate an application for a credit card or car loan.
Lenders will take into consideration your experience in handling money for the last few years such as how much money you have saved, including your regular deposits and withdrawals. They will also enquire about your sources of income.
Without any minimum deposits, several major U.S. banks offer free checking accounts with no annual fees. You have to keep in mind, too, that poor banking habits may be factored into credit decisions. Low balances, overdrafts and bounced checks can all hurt your chances for securing a loan with a financial institution.
2) Pay Your Bills Promptly
Data of your monthly rent payment and utility bills may not be included in your credit reports since they traditionally track money that you have borrowed. At the same time, credit card payments will appear and shape your important FICO score. Be sure to pay your statements on time, in full, if possible to ensure you have an optimal score to present to lenders.
3) Use Secured Credit Cards
Consider beginning your credit journey the world by using a secured credit card. As there is no collateral backing up the line of credit, regular credit cards are called ‘unsecured’. The bank provides money without any guarantee that you will repay the money with an unsecured credit card. Secured cards, though, require you to have on deposit what you intend to borrow. This is a great way for new borrowers to build their creditworthiness in the eyes of lenders.
4) Consider Unsecured Credit Cards (if relevant)
If you have already proven that you can pay your monthly balance on time with a secured credit card or a retail card, consider growing into an unsecured credit card. These cards serve as one of the quickest and most impactful methods for building a strong credit history when used prudently. With these cards, lenders set a limit for your borrowings. Once you pay back the balance, you can borrow again within your limit.
5) Get to Work
Every credit application asks for information regarding your employment and income. Next to paying your bills on time, this factor often determines your creditworthiness n in the eyes of lenders. By developing a strong career, you demonstrate to lenders trustworthiness and responsibility that they find attractive.
Moreover, stability is a characteristic that lenders seek when they examine a borrower’s application. They will be more likely to issue you credit, particularly large sums of capital, if you demonstrate employment in the same field and position for many years consistently.