hankfully, we aren’t born with a credit score. However, trying to establish credit can be challenging, so it is important to know that you can set yourself up to be an ideal candidate for a loan or credit card long before you are eligible.
Lenders and credit card companies can look at your bank account history, residence history, employment history and utility accounts in your name to determine if you are creditworthy by obtaining your 3 credit reports. Factors that are noted are how long you’ve had a bank account and if it has gone into overdraft frequently; how long you have lived at your current address or previous addresses; whether you have gaps in employment or are steadily employed; and the payment history of utility accounts (if you paid late or had delinquent accounts).
If you have a bank account, apply for a credit card through that bank. They may be more likely to help you establish credit if you have been a longtime customer with a steady account.
Credit bureaus want you to have three to five credit cards so that they can adequately judge your responsibility and credit history to determine your credit score. But going from zero cards to five cards can be impossible, and it is not advisable as multiple credit inquiries can lower any credit score you have. One way to break into the credit world is to get an in-store credit card. While there are thousands available, don’t just apply for every card you see as multiple forms of new credit lines looks risky to credit bureaus and lenders. Pick one in-store card that you would use monthly. That doesn’t mean find a high-end department store and charge mink stoles each month. Find a store at which you already shop regularly. Grocery store credit cards are a good idea because you have to buy food. You may not need to buy a new sweater every month.
If you deal with a landlord, utility company or credit card issuer who reports to the three major credit bureaus, you can request that they do so. A utility company may only report delinquent accounts to the bureaus, so if you’ve had a stellar payment history, ask the company to report to show that you’re fiscally responsible.
Building a high credit score
Debt can accumulate quickly and before you know it, your credit is ruined just as fast as it was established. There are ways to help keep you debt low while you establish credit. First, only charge a small balance each month that you can quickly turn around and pay off. Never charge more than 30 percent of your credit limit. The closer your balance is to your credit limit, the riskier you seem to lenders. And paying off your balance each month shows you can be responsible with your credit cards. If you feel like your spending might get out of hand, choose one item or area to use a credit card, such as buying gas or groceries. Then, pay off your credit card’s balance within the next week so you can keep accurate banking records.
Another way to build your credit score is to keep credit cards open, even if you don’t use them often. Maybe you applied for an in-store credit card to establish credit but no longer require the credit card. Don’t close the account. A major factor in deciding a credit score is the history of your credit. People who have had credit card accounts open longer are considered less of a risk than those who recently opened an account.