Building a solid credit history
A solid credit history can be one of your most useful and powerful financial assets. A record of prudent credit use and prompt payments can help you qualify for credit when you need it.
There are three main credit agencies that gather financial information on individuals and then make that information available to lenders to help them determine whether to make a loan to someone. The information they compile includes a great deal of basic data such as age, Social Security number, current and previous addresses, and employers. They also collect information on your borrowing history from credit card issuers, mortgage lenders and others. Your credit report probably includes all the credit relationships you have, date established, maximum allowed credit, current balances and payment history.
How to build a solid credit history
- Reasonable borrowing relative to your income.
- Prompt payment of monthly bills. If you miss a payment and pay the following month it can still had a negative impact on your credit history.
- Reasonable credit card balances compared to your maximum limits.
- Paying down balances over time.
Items that can hurt your credit report
- Filing for bankruptcy.
- Too many credit cards.
- Too many applications for credit.
- Late or missed payments.
- Increasing credit card balances.
- Several credit cards with balances close to their limits.
Lenders use your credit report, along with evaluating your capacity to repay, your character, and any collateral you may have, when making decisions about lending you money.
For that reason it's important to make sure your credit report is accurate and up to date. You may request one free credit report each year from www.annualcreditreport.com. You can also get copies by calling the credit agencies, but there may be a small charge unless you have recently been denied credit.
- Equifax: 1-800-685-1111 or www.equifax.com
- Experian: 1-888-397-3742 or www.experian.com
- TransUnion: 1-800-916-8800 or www.transunion.com
If you see an error on the report, be sure to contact the credit agency. Tell them about the error and ask that it be corrected. Negative information generally remains in your credit report for seven years and bankruptcies may remain for 10 years.
Being familiar with your credit report, making sure it is accurate, working to improve your credit characteristics and understanding the importance of your report can all help you ensure that credit will be there when you need it.