The ABCs of Building Credit

A good credit history is important not only for getting good interest rates on a credit card, car loan or mortgage. It may also mean lower insurance rates, a better deal on a cell phone plan, or even be a determining factor in whether you or not you get a job. The reality is that it takes good credit to achieve many potential dreams. If you’ve had credit issues in the past, or just haven’t started establishing a good credit history, it’s never too late to start.

Vantage partners with Accel Financial Counseling to provide free financial education and counseling services to our members. Here’s what they have to say about the state of getting credit today:

“Those starting to build or rebuild their credit will be attempting to do so during a time when lenders are taking a very close look at all applicants,” said Amy Parten, Accel Education Specialist. “Someone without an established, positive credit history is likely to have a more difficult time establishing credit than he or she would have had a few short years ago.”

With that being said, here are a few ABCs of establishing and maintaining a positive credit file:

A – Apply for credit sparingly. Applying for too much credit at once can send the wrong signal to the lender, making it appear that you are desperate for credit. Additionally, too many inquiries can have a negative impact on your credit score, and too many credit cards in your wallet only increases your temptation to spend. It’s smart to start slowly and move along the credit path at a measured pace.

B – Be aware of how credit works, then work it to your advantage. If you want to secure a home or car loan, you’ll need a “thick file,” meaning lenders want you to have at least three credit lines. Otherwise, there’s not enough credit history for them to evaluate you as a credit risk. The scoring model also likes to see different types of credit handled responsibly, so apply for both open-end credit such as credit cards, and closed-end credit like car loans, where the amount borrowed is repaid in equal monthly payments.

“Many credit applications require banking information,” said Parten. “Having an established checking and savings account is important because lenders want to be able to research your handling of daily finances.” It’s always recommended that you show positive account management, such as a savings habit and not overdrawing your checking account on a regular basis. And, you should pay your bills on time, and not use more than 30 percent of your available credit. Doing these things can earn you a high credit score, which should lead to lower interest rates on your credit cards and loans, making you a winner in the credit game.

C – Consider a co-signer. If you’ve been denied credit based on your own merit, consider asking a relative to co-sign on a loan or credit card with you. This is a risk for the co-signer, as the payment history is reported on his or her credit file, too. If you fail to make timely payments, both of your credit histories will be negatively impacted. Another option is a secured credit card. With this option, you put up money as collateral for the card and are granted a line of credit in that amount, so the issuer has minimal risk. By handling this type of credit responsibly, you will be well on your way to building a positive credit record and will likely be able to obtain an unsecured card.

The financial world in which we live requires us to have access to credit. By understanding the importance of treating your credit obligations responsibly today, you will be laying the foundation for a stable financial future.