5 Legit Ways to Establish a Good Credit History

Part of being an adult is learning how to handle your finances. You’ve probably heard the term credit history somewhere before already, but you don’t exactly know what it means for you.

Credit history refers to a record of your ability to repay your debts. This report includes your credit accounts, how long you’ve had them, the amount you owe, and how well you’ve been paying them off.

Your credit history also contains information about whether you pay your bills on time.

Banks, financial institutions, and credit card companies use this credit history to determine if you’re a responsible borrower and whether they will extend credit to you. Ultimately, your credit history will influence the approval of your future credit or loan applications.

 

As such, it’s crucial to establish a good credit history early on. Here’s how you can build your credit record:

1. Pay your bills on time.

Sometimes, you fail to pay your bills on time. A lot of times, it’s a case of simply forgetting about the due dates of your bills because of a busy schedule. But, it could also be because you failed to appropriate enough budget for them.

Utility companies and service providers don’t concern themselves with your personal matters. So, you should always make sure that you have enough money set aside for your necessary expenses such as your rent, electricity, water, phone, or internet.

When you forgo paying your bills, your account is forwarded to credit collection companies. That goes on your credit record, and it’s bad for your credit history. Always pay your bills on time. These days, banks have mobile apps or online banking platforms for bills payments and other transactions.

2. Take out a small personal loan.

If you don’t have any credit history yet, you can start by taking out a small personal loan or applying for a credit card with a low credit limit. You can also apply for an online loan for a quick and easy approval process. Online loans are especially useful during emergency situations when you need fast cash.

A small loan will help you feel your way around how credit cards and loan interests work. More importantly, this will allow you to demonstrate that you’re a responsible payer and that you can manage your finances well.

3. Don’t max out your credit cards.

 Credit cards make it highly convenient to purchase items. But, it’s good practice if you don’t max out your credit cards! In fact, most financial advisors recommend keeping your credit utilization ratio to under 30%.

Maintaining a healthy credit history means that you pay off the interest rates of your credit card bill, rather than just settling the minimum payment required. Creditors also encourage debtors to pay regular installments, rather than pay off the whole sum of the debt in one go.

 4. Balance your use of cash and credit.

A lot of Filipinos would rather use cash simply because they don’t want to incur debt. But, it’s not good for your credit history if you don’t use your credit cards at all. Find the right balance between using cash and credit to convey that you’re managing your finances well and that you’re a reliable borrower.

5. Minimize your credit card applications.

Your credit report includes the number of times you applied for a credit card. A lot of credit card sales agents are now scouring malls and major commercial establishments, to encourage shoppers to apply for a credit card. It’s tempting to quickly fill out an application, in exchange for the freebies they offer on the spot.

But, each time you apply for a credit card, you’re triggering a credit inquiry, and that inquiry will reflect on your credit report. The more credit or loan applications you have, the riskier you seem to financial institutions.

 

Start Building Your Credit History Now

Not having debts doesn’t necessarily mean that you’re in good financial standing. A good credit history means that you can manage both your cash and credit accounts efficiently. When the time comes that you need a loan for a significant purchase or unexpected financial crisis, then your good credit history will back you up.

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