Good Credit History

Every consumer wishes to have a good credit history, and with good credit management it is a relatively obtainable goal. However, it is important to remember that you are responsible for building and maintaining your own credit history, and that credit companies are actively keeping an eye out on your habits as a borrower of their money.

Establishing good credit is a paradoxical chicken-and-the-egg problem similar to finding a good job when employers are looking for people with experience, while the people with experience tend to already have a job. That leaves you with no experience and no job. Credit is the same way. A credit card company wants to give you a credit card, but first they want you to prove that you have a good credit history. But without a credit card it can be quite difficult to establish that.

Therefore the first step is to start small, perhaps with a local lending institution or department store card. These types of lenders are usually happy to start you off with a modest line of credit- say a limit of $200 to $500. This allows you to get your feet wet without the danger of drowning in the deep end of the credit pool, so to speak.

Make purchases with your new credit card, but be diligent in paying off the balance when it comes due- or even better, before it does. Make a schedule of when you wish to make payments- for example the day after your payday, or at the end of the month- and stick to it as best as you can.

Most lending institutions keep a record of your payment history and share the details to a credit bureau. This may sound like an invasion of your privacy, but in actuality it is intended for mutual benefit- it protects both you and the lender. In fact, before you obtain your credit card, you may want to inquire as to whether the company will report your payment history to a credit bureau- and if the answer is no, to find one that will.

Having your payment schedule reported to a credit bureau is what helps to establish good credit. As long as you are able to pay your bills on time, this will reflect positively on your credit report. After about six months, you should be able to apply for and receive a new credit card with a higher line of credit with one of the major credit card companies.

Of course, the negative side is that from time to time, and for reasons beyond your control, you may be unable to meet your obligations. Hopefully this just means that you will have to pay a little interest on your outstanding balance, and you can do so and move on. But if you have questions about your credit, you can always check your credit report. Most credit card companies will allow you to access an instant credit report, which is merely a record of all purchases, payments and interest charges on your account. The monthly bill you receive from your credit card company will have the same information, but if, for any reason, an adverse action was taken against you- your limit was decreased, your interest rate was raised or perhaps a collection agency was contracted to collect an outstanding debt you had- this will also show up on a credit report. It's important that you review your report closely, to ensure its accuracy. Generally speaking, any negative items on your credit report will remain there for seven years.

As long as you manage to stay on top of your borrowing and repaying habits, you need not worry about such blemishes on your credit history, and creditors will be only too happy to continue dealing with you- increasing your limit, and even offering special deals and promotions to encourage you to continue your patronage with them. Before long, you will find your mailbox overflowing with offers from various credit card companies wanting to attract your business. And although it may be tempting to apply for and receive all these fancy cards with their bells and whistles, remember that your goal is to build and maintain a good credit history- something which becomes increasingly more difficult to do the more cards you have. Keep in mind that the "reward points" and other bonus incentives generally come with a hidden cost. Try to make do with at most two major credit cards.

Establishing a good credit history is important not only for obtaining credit cards, but for obtaining loans from banks. Eventually, at some point in your life, you will likely wish to secure a sizable loan from your bank in order to purchase a car or even a house. A bank will be happy to lend you the money as long as you have demonstrated that you are capable of handling credit- in other words, as long as you have a good credit history.