How to Build Good Credit

So you don’t have any credit to speak of, but you have big plans for the future.  Maybe you’re a fresh college graduate or a young person eager to buy your first new car. 

If you have never had to use credit before, first of all BRAVO!  Of course, it’s best to pay cash for the things you need so that you don’t have to worry about credit card payments, loan payments, or interest rates.

But if you’re young, the chances of you needing credit in the future are very real.  Someday you might want to buy a house.  Perhaps you’ll want to buy a new car. 

Chances are pretty good that you won’t have the cash outright to buy these high ticket items which mean you’ll need credit.  Plus, it’s always good to have a little credit since many utility companies will look at your credit to turn on your power bill, for example, without a deposit of some type.

When you’re starting fresh with no credit history at all, here are a few ways to get a good start on establishing good credit:

• Pay your bills on time, especially mortgage or rent payments. Apart from extreme circumstances like bankruptcy or tax liens, nothing has as big of an impact on your credit history as late payments.
  
• Establish credit early. Having clean, active charge accounts established many years ago will boost your score. If you are averse to credit, on principle, consider setting up automatic monthly payments for, say, utilities and phone on a credit card account and locking the card away where it's not a temptation.
  
• Don't max out available credit on credit card accounts. Lenders won't be impressed. Instead, they are much more likely to assume that you have trouble managing your finances. Beyond one or two credit cards, it starts to get complicated.
  
• Don't apply for too much credit in a short amount of time. Multiple requests for your credit history (not including requests by you to check your file) will reduce your score. If you are hunting around for good loan rates, assume that every time you give your Social Security number to a lender or credit card company, they will order a credit history.
  
• Be neat and consistent when filling out credit applications. This will insure that all your good deeds get recorded in a single file, as opposed to multiple files or, worse, someone else's file. Watch out for inconsistencies in use of "Jr." and "Sr."
  
• Check your credit history for errors, especially if you will soon be requesting a time-dependent loan, like a mortgage.