Building a Strong Credit History

Fortunately (or unfortunately as the case may be), the extension and use of credit is vital to our economy as well as to our lives. We all must spend money, and if we don't have it readily available, having the alternative of buying on credit (in other words, borrowing) can often make things easier. Even if we buy only necessities and pay our outstanding balance in full every month, it's important that we have credit available to us. This option, however, requires that we establish a good credit history. If bankruptcy or some other financial setback has resulted in negative credit against us, it's important that we work to rebuild a good credit rating. The following steps can be applicable whether just beginning or reestablishing good credit.

One of the first and easiest steps in establishing a good credit history is to open savings and checking accounts. These are not only ways of storing your money, but also of learning to manage your finances responsibly. The next step logical is to obtain some type of credit in which the lender will report your payment record to the major credit bureaus, such as a credit card.

Young adults, particularly new college students without a credit history, often receive offers from banks and other businesses for credit cards. These offers will usually extend a fairly low amount of credit, typically $250 to $500. Getting one of these credit cards, using it carefully, and making the payments before the due date is an excellent way to begin establishing a strong credit history. After showing responsibility with this smaller amount of credit, your good credit record will allow you to obtain other credit cards with higher limits and lower interest rates.

If you don't necessarily fall into the above category, you can still begin to build (or rebuild) your credit record with a secured credit card. You'll have to deposit money into a savings or other deposit account with the card issuer. These funds are held by the lender as security for payment of the amounts charged on the card; they'll also determine your credit limit. After a period (typically a year or two) of making timely payments on the account, the lender may be willing to refund your deposit and issue you an unsecured card with a higher dollar limit. Study the terms and conditions of these cards (indeed, of all credit cards) carefully. Interest rates and fees can vary greatly and it's very important to comparison-shop. Refer the article Bad-Credit Credit Cards for more information and tips on finding the best card accounts available.

In some cases, people who've completed bankruptcy proceedings and whose debts have been discharged by the bankruptcy court may also receive unsolicited offers for new credit cards. The card companies' rationale seems to be that since the individual is now virtually debt-free after the bankruptcy discharge, he or she has more income with which to make future credit card payments. And although these offers can also be used to get back on track toward good credit, it must be remembered that any new credit should be used sparingly and with the utmost responsibility.

Another avenue of establishing a good credit history is by using a local retail store credit card. But make sure that the lender reports your use of the card and payment record to the credit bureaus. If they don't, you're wasting your time using their card. Remember, the purpose here isn't to get credit just to make easy purchases and rack up a mountain of debt. You must use the credit wisely. You're using it to build a solid history in order to gain access to more credit for those important purchases that you'll need to make down the road. Those lenders will request your payment history from the credit bureaus before granting you this additional credit. If a local retailer won't help you by reporting your account, don't accept a card from them. There are plenty of other local and chain retailers that do report credit accounts, so you shouldn't have too much of a problem finding one.