5 Steps to Safely Build a Credit History

by Miriam Caldwell | More from this Blogger

14 Nov 2006 09:20 PM

It is recommended that young people take the time to build their credit history. This way when it comes time to borrow a car or a home, they can receive lower interest rates, because they have a good solid history. It can be important to do, but at the same time you should proceed with caution. Many end up ruining their credit in the name of building a good credit history. Here are five tips to help you safely build your credit history.

1) The easiest way is to take out an interest free loan from a store. If you are purchasing something from a store on an interest free loan, it is best to have the money already available to you. This way if something happens (you lose your job, or the car breaks down) you will have the money available to continue to make payments.

2) If you are using a credit card to build your credit history, then you should take out a card with a small limit. It is also important that you do not put charges on your card that will exceed your limit. It is safest to stay well below your limit. You should also pay off your credit card in full each month.

3) If you have a loan you should make more than the minimum payment each month. You should also pay the loan off early. If you have a zero percent offer you should pay off the loan before the offer expires. This will save you money in interest charges. In many cases the interest is added on at the end of this period anyway and you don't actually save the money.

4) Many people look at the credit card as an increase in their spending power. This is a dangerous assumption. A credit card does not mean that you have more money available to spend. It means that you can borrow money to spend, which you will repay at a high interest rate. This is especially true if it is your first card. Do not allow yourself to be tempted to make frivolous purchases that you normally would not make.

5) You need to make your payments on time every month. If you are not sure that you can do this, do not take out a loan or a credit card. This will destroy your credit history, and it is better to have no credit history than a really bad one.

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Learn more about Miriam Caldwell

Miriam is a SAHM mom of three children. She has a daughter who is seven, and two sons, four and two. She loves being a parent and spending time with her children.

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