STRATEGIES TO BUILD CREDIT AT EVERY STAGE
Good credit history goes a long way in helping achieve some of your biggest life goals, such as buying a car or financing your home. But, to build a credit history, you need a loan and, to get a loan, you need a credit history.
So, how do you even start?
No one comes into this world with a credit history. As you live your life, how you manage your finances begins to paint a picture of a person who is reliable and responsible with their money or isn’t. Favorable credit history will help you get lower interest rates on loans and credit cards and get approved for jobs and leases for rental properties.
Creating debt isn’t necessarily a bad thing. You just have to do it responsibly. In other words, it’s best to give yourself a leg up as early as you can.
In your youth
If you can, starting in your late teen years will lay the foundation for stable credit history. Here are some ways to do this:
- Parents with good credit can add their teenagers as authorized signers on their credit cards, so teenagers can build credit with supervision and minimal risk.
- Teenagers can apply for a secured credit card, which matches an amount placed on a deposit with a financial institution.
- Parents can co-sign for a small loan in the teenager’s name. A co-signer is an added layer of security for financial institutions and is responsible for making payments on the loan if the signer is unable to do so.
If you take out a credit card, be careful to only make purchases you can pay in full every month. You never want to have a high credit utilization, or “max out” your credit card.
As a young adult
Taking out a loan to purchase a car is common at this point in your life. As you begin car shopping, keep the price in mind, and look for auto financing from Superior Choice, as your local financial institution often has more benefits than dealer financing.
It may also be time to apply for a credit card of your own. Watch your timing, though. When you apply for loans, lenders request your credit history from the credit bureaus to see how reliable you are. Multiple queries in a short span of time are one factor in lowering your credit rating.
Be sure to avoid credit cards that charge large fees, like annual fees. There are plenty of affordable options out there. We offer a Visa Platinum card, Max Cash Preferred card, and Real Rewards Card as options for someone who is just starting to build credit.
While an unfortunate accumulation, student loans show you’re conscientious about paying off debt. If you’ve started paying these off, make full payments by or before the monthly due date to continue improving your credit rating.
Your middle years
Around this time, you’ve probably begun to build a decent credit history, and maybe you’re thinking about buying your first home. A mortgage is a great way to diversify your credit.
Remember the “credit utilization” term we talked about earlier? With the products you’ve likely taken out at this point, now is a good time to look into the ratio of how much credit you have versus the credit you’re using. As much as possible, you should try to use no more than 30 percent of your available credit. One strategy to do this is to request a credit limit increase on an existing credit card.
Avoid borrowing more than you can repay. A bankruptcy or foreclosure will damage your credit rating for a long time.
As a senior citizen
At this stage in your life, you’ve worked hard for your credit rating. Now, the most important thing to do is keep it safe.
- Check your credit report regularly and challenge discrepancies.
- Watch for signs of identity theft. If you see suspicious activity on your credit report, put a credit alert on your account.
- Fraudsters tend to prey on senior citizens, especially online, so check your account activity frequently.
- Keep your credit cards active, and make sure you can pay off the balance every month.
- Continue to pay your bills on time.
The bottom line: Your credit history is the work of a lifetime of financial habits, and it will likely change over time. From the time you start to well past retirement, pay your bills on time, don’t borrow more money than you’ll be able to repay and don’t max out credit cards. These key steps will put you on the path to building a robust credit history.