Why Would I Want To Build A Credit History ?
So you did a Google search wanting to learn about what a credit history is and why you would even want to build one…
Building a credit history is something that many people are not taught. If your parents are not good with their finances, then most likely you won’t be either, unless you are really good at self teaching your self. Since you found this article, its tells us that you are interested in building your credit history!
Your credit history is a way for banks and lending institutions to measure your ability to pay and repay any debts that you have accumulated. This can be debt from credit cards, auto loans, rent, home mortgages, personal loans, credit lines, etc. All of these loan accounts report payments to the credit bureaus as the consumer pays them. If the consumer pays them debt payments on time, all is good. If the consumer makes a late payment, that can damage your credit history and lower your over credit score on your credit report. And that’s a big no no!
You want to build a GOOD credit history, NOT a BAD credit history.
Why?
Because if you build a good credit history, your credit score will be higher on the credit history with Experian, Transunion, and Equifax. The higher your credit score, the more the banks will be willing to lend money to you. And not only might they lend money to you, but they will lend the money to you at a lower interest rate which will in return SAVE YOU MONEY! Isn’t saving you money a great reason to want to build a positive credit history? We think so!
On the flip side, if you make late payments or don’t pay your bills at all, this will negatively reflect on your credit report. When that happens, your credit score will go down and you will be cursed with BAD CREDIT!
Why is BAD CREDIT BAD?
You DON’T want bad credit because once you get it, its hard to fix. There are credit repair companies who can assist you with repairing your credit, or you can attempt to fix your credit. But why get bad credit at all? Just learn how to be responsible with your credit and not have to worry about it!
Interested in buying a house or car? Well when you have bad credit you might get denied the loan! Why? Well think about it. If you were a bank, and Joe Smoe comes into the bank lobby asking for a credit card or car loan, what would you ask him? You would want to learn more about Joe’s ability to pay off his previous debt. How would you do that? You would request permission to run Joe’s credit report with the three major credit bureaus: Experian, Equifax, and Transunion. Then once the bank reviews the credit reports and scores and see’s that Joe had late payments, they are either going to decline the loan OR give Joe the loan at a higher interest rate!
Oh, but that’s not fair Joe says! Why can you give Missy May over there a loan at 6% interest me me one at 15%? That’s discrimination! Actually its not says the bank! Your past credit history shows many late payments. You should be happy we are even lending you money says the bank. Since you are a higher credit risk, we still want to lend you money, but we have to charge you a higher interest rate to protect ourselves in case you default on the loan.
So in a nutshell, if you have BAD credit, you will pay, one way or another! So do yourself a favor. ALWAYS PAY OUT DEBT PAYMENTS ON TIME.
Here are some tips to remember on how to build a positive good to excellent credit history:
- ALWAYS pay your credit cards, loans, and mortgages ON TIME (ANY BILLE FOR THAT MATTER)
- NEVER MAX OUT your credit cards. (Industry professionals suggest never charging more than 15 to 20% of your available credit line on a credit cards.)
- Pay off your credit cards each month on time in full. This will help you learn to manage debt and not get overwhelmed.
- NEVER let a friend borrow your credit cards.
- IF YOU LOSE your credit card, freeze the account asap to avoid fraudulent charges.
- Have multiple types of accounts: credit cards, lines of credit, installment loans. (As long as you can afford to that is)
There are many more tips we can review with you, please check out our blogs for more credit related articlces!
Disclosure: This article is for informational purposes only and should not be taken as financial advice.
