Why Building a Good Credit History Is Important
Why is building a good credit history important?
Understanding and establishing credit as young as 18 years old can make your transition to adulthood much smoother. Your credit history — a measure of your debt repayment activity over time — may be considered when applying for jobs, leasing or purchasing a home, or buying a car. These are just a few reasons why it’s important for you to develop good credit habits that can help you establish a positive credit history.
If you’ve never used credit, you likely don’t have any credit history. While many traditional lenders and finance companies don’t typically extend credit to someone with no credit history, there are ways you can build your credit as a young adult.
How can I establish credit history?
- Set up authorized user and joint accounts.
Experian says having your parents include you as an authorized user or joint credit card account holder is an easy first step toward building a positive credit history. Helping your parents review the monthly statements and perhaps even helping them make payments will put you on a good track to understanding and managing your credit. - Apply for a secured credit card.
A secured credit card (which is backed by a cash deposit) is intended to help you establish credit history and increase your chances of getting approved for other major forms of credit such as rent, mortgage or car financing. - Keep your credit utilization low.
Your credit utilization ratio is how much of your total available credit you use. Most experts recommend using no more than 30 percent of available credit on any card. So, for example, if you have one credit card with a limit of $5,000, your recommended credit utilization ratio would be $1,500. Also, since the amount of credit you use in relation to your total credit limit accounts for 30 percent of your FICO credit score, it’s best to keep it low. A general rule of thumb is the lower your credit utilization ratio, the higher your credit score. - Pay your bills on time, every time.
Whether it’s for your car payments, student loans, rent or mortgage, making on-time payments is a great way to improve your credit and build a good credit history. You can set up automatic payments and/or electronic reminders to help you stay on track with monthly payments. - Apply for auto financing.
If you’re a young adult with no credit history and are in the market to purchase a vehicle, you could qualify for subprime auto financing through a car dealership enrolled in the Credit Acceptance program. Because we report to the three major credit bureaus, you will have the opportunity to build your credit history with on-time car payments. Just fill out this brief form on our website and we’ll connect you with a car dealership in your area that can help you get approved to purchase your next vehicle!
