You’ve probably heard quite a bit about credit reports and scores on the radio, TV, or Internet, but haven’t actually heard how it all works. The first thing to know is that establishing your credit is extremely important when you start off financially. Without good credit, it’s difficult to rent an apartment, get a car loan, get a cell phone, or obtain car insurance at reasonable price.
In the financial world, a credit report is used in the same way a college uses your high school transcript. If your transcript shows you handled yourself well in high school, you’re more likely to be accepted into the college to which you apply. When it comes to finances, the people you apply to—banks, landlords, creditors—want to see that you have a history of handling things well before they trust you with their money. Essentially, they want to see two main things. First, that you don’t owe a lot of money, and second that you always pay people back.
Here are the important things to do to establish your credit the right way:
- Find a way to establish on-time payment history with money you borrow.
- Consider this: A secured credit card is an easy way to get started. To get one, you make a security deposit with a bank or credit union. Since they have your deposit to fall back on, your credit history isn’t considered heavily. Learn about the ESL Visa Secured Credit Card.
- Always pay all your bills on time.
- Consider this: Normally the things reported on your credit report are from loans, but anything, such as unpaid medical bills, can wind up on your credit report if they are unpaid and sent to collections. Use the Payment Calendar Spreadsheet to stay on track.)
- Don’t spend more on credit cards than you can pay in full each month.
For more in-depth information and help with basic terms regarding your credit, read Getting Credit.