Your credit history is one of the most important measures of your creditworthiness as a consumer.
A bad credit history can prevent you from getting the best deals on credit cards and loans, cause your auto and homeowner’s insurance rates to go up, affect your employment opportunities, and make it harder for you to rent an apartment.
Here are five ways you can build a positive credit history and increase your creditworthiness.
Get a credit card
One of the easiest ways to build and maintain a positive credit history is to get a credit card and use it responsibly.
If you have no credit history or if your credit score is too low, you might not quality for an unsecured credit card.
To get started, you can choose to get a secured credit card (for which you have to put down a deposit) or become an authorized user on someone else’s credit card.
Once you have a credit card, make sure you do not utilize more than 30% of your credit limit at any given time.
More importantly, pay your credit card balance in full every month. If you are unable to do so, pay more than the minimum required payment every month and try to pay off the outstanding balance as fast as you can.
Take a credit builder loan
In addition to getting a credit card, you can also take out a credit builder loan, as having a diverse mix of accounts can help you build a positive credit history and boost your credit score.
When you take out a credit builder loan, the lender will not pay you the money directly.
Instead, they will deposit the loan amount into a savings account. Once you pay off the loan in its entirety, you can access the funds in the account — along with the interest, if any.
Check your credit report for errors and get them corrected
One of the most important things you should know about your credit report is that it might not be 100% accurate all the time.
It’s why you need to go through your credit report carefully and find out if there are any errors that need to be corrected.
For instance, if your report you are behind on payments when you are not, if it contains negative or delinquent accounts that aren’t yours, or if it shows inaccurate credit limits or loan balances, you should contact the credit bureau and get it corrected as soon as you can.
Make payments on time
Failing to make your credit card and loan payments in a timely manner can affect your credit to a significant extent.
Missing a payment can be even worse for your credit score. So, make sure you pay all your bills and loan payments on time.
To ensure that your monthly bills and loan installments are paid on time, you may consider signing up for the auto-pay facility through your bank.
Keep your older accounts open
The longer you have an active credit card account, the better it can be for your credit history.
Longevity of the account is one of the factors taken into consideration while determining your credit score.
Moreover, when you close out an old account, you are reducing your total available credit, which could hurt your credit utilization ratio. So, keep your older accounts open even if you are no longer using them.