If you have just left school or college, you’re eventually going to require a credit card, car loan or other form of lending. That requires a little planning as a credit history evolves over time.
You cannot build a credit history quickly. It is made up of credit utilization and payments made over time. A typical credit report is only updated every 30 days or so and we are talking months and years to build a good credit score, not days or weeks.
What you can do is begin building a credit history right away even if you have no plans for a car loan or other type of lending for a while.
Get a phone contract in your own name
A phone contract is viewed as credit as part of the cost of the phone is spread over the term of that contract. If your parents have always paid for your phone, now would be a good time to get one under your own name.
It will cost you per month but it will also help build a credit history. Make sure to set up automatic payments and ensure you always pay on time and you’re on your way.
Get a credit card
If you’re over 18, you can apply for a credit card. Whether you do so or not is entirely up to you but it will help build a credit history. There are a couple of rules though.
- Don’t go crazy and max out your credit limit right away – Use your credit card sensibly. Use it for gas or for regular purchases only.
- Pay it off in full every month – Credit cards are expensive borrowing but if you pay off your balance in full every month, they are cheap. Get into the habit of only spending what you can afford and pay it off when you get paid and you should be good.
- Set up automatic credit card payments – If you forget to pay off your credit card one month, having an automatic minimum payment set up will ensure you don’t miss a payment. Missing a payment does serious damage to a credit history so avoid it at all costs!
Advice for renters
If you rent your home, some landlords are willing to add a note to your credit file mentioning regular payments. Utility companies can also make entries depending on how you pay your bills. Both can help build a credit history as long as you always make your payments on time, all the time.
A credit history is a summary of your financial dealings over a lifetime. It takes time to build and it only begins once you start accessing credit. Do it right and you will quickly build a good credit score and be ready for when you need a car loan or other type of lending.