Your credit history does not have to be your credit future. A productive credit history helps you do the things you want to do. For example, you may want to: get a car loan, buy a house, qualify for an apartment, or get a job. Depending on your situation, creating a productive credit history may mean taking steps to: build your credit, build an alternative credit history, repair or improve your credit, or maintain your credit.
The first step is to review your credit reports. You can do this by ordering copies of your credit reports from annualcreditreport.com. You should make sure the collections information is accurate and the balances are not also being reported as outstanding with the original creditors. Next, you should pay all your bills on time and as agreed. If you have any accounts in collections, you may want to get legal guidance, depending on the age of the accounts. Paying them off will not likely affect your credit scores, but it may improve how your credit reports look.
You should try to eliminate the balance on your credit cards. By carrying high balances on credit cards compared to available credit limits, it can significantly reduce your credit scores. Some experts advise using no more than 30% of your available credit, while others advise using no more than 20%. This is your credit utilization rate. Keep old accounts open if you can. Once you pay off the balances on those cards, you may want to keep them open. Older accounts create a longer credit history. Having a history of good credit helps you get housing, bank accounts, credit cards, and loans, and reduces how much interest you pay.
Your bank or credit union may offer you a secured credit card in which you put in an amount of cash which you can then spend up to that amount on your credit card. When you pay the secured credit card bill, you restore your spending amount back to the amount you initially had in your account. Through credit builder loans, you build credit and savings at the same time through a loan from your bank or credit union. The money is held for you as savings. You pay the loan in small payments, usually over six to 24 months. You could also get a credit card with a relatively low credit limit from stores, gas stations, and other types of businesses. The low credit limit means you are not as likely to run up high credit card bills.
There are three big nationwide providers of consumer reports: Equifax, TransUnion, and Experian. Their reports contain information about your payment history, how much credit you have and use, and other inquiries and information. Paying on time, every time, can help you build a strong credit history and lower your costs for borrowing money in the future.
Not all financial products help you build your credit history. Using a debit card, cash, or a prepaid card, you spend only the money you deposited beforehand. While they can help you avoid debt, they do not establish your credit history. Payday loans do not help your credit history because the payments are not reported to the nationwide credit reporting companies or included in your credit reports. Taking out a “buy here, pay here” car loan at a used car dealership does not help establish your credit history. The dealers often report only negative information like late payments to the credit reporting companies. If you decide to work with one of these dealers, though, you can ask for them to put in writing that they will report your on-time car payments.
Your credit history can affect your access to credit, loans, jobs, housing, insurance, and other important services. Understanding your rights helps you know how to protect your credit history. You can take steps to improve and manage your credit scores. This includes paying your bills on time and as agreed. Get and review your credit reports at least once every 12 months to make sure the information is accurate. Raising your credit scores can help you open the door to better financial opportunities. The higher your scores, the more access you’ll have to the most favorable, least expensive borrowing options.
