The road from no credit history to good or even excellent credit history might look an arduous one. However, it is about sticking to the basics and doing the simple things right. Building a credit history is very important as it is the insignia of someone who is creditworthy and therefore trustworthy as far as a lender is concerned. If an individual with no credit history has set out to improve the credit score and build an impressive credit history, here are some tips and habits worth considering.
Prepaid cards and secured cards
These are two cards where you will not be tempted to spend beyond a limit. That rules out the late fees, overdraft fee and most importantly, the chance of running into a debt. As opposed to the low credit, credit cards with very high interest rates, prepaid and secured credit cards do not come with the grim proposition of high interests. So card holders who are not yet aware of their spending patterns and impulses will benefit excessively from these two types of credit cards.
In prepaid cards, you load your card with a fixed amount and use it like a regular credit card, until you use up the amount you had loaded. In secured cards, you make a deposit and that becomes your credit limit. You can continue to use the card as long as you make payments on time. The moment you miss a payment, card issuers can claim the amount from the deposit and you will have to replenish it.
Make all regular expenses through the credit cards
You can improve your credit history only if there is a trail for all your expenses. That means you should spend a major part of your regular expenses through your credit card. It is advisable to avoid unnecessary expenses because you will land up in debt. However, all the regular transactions like buying groceries, making phone bill payments etc. should be through cards so that your credit history reflects them. Even when you purchase prepaid cards, you should do so from stores that report to the credit bureau.
Go for higher credit limit cards as you improve your credit score
This is a very important factor that a lot of card holders seem to ignore. Credit score is dependent on the credit utilisation ratio which is the ratio of your card debt to the available credit limit. In other words higher the credit limit available to you, and lower the card debt, better is your credit score. So, as you improve your credit score and build on your credit history, go for credit cards which offer a higher credit limit. It is also imperative that you keep the credit card debt to a minimum. That will also eliminate the risk of paying high interests on card debt.
Paying bills on time
Whether you have monthly mortgages, loan payments, insurance premium, phone bills or card bills, pay them on time. Consistency in bill payments is always rewarded through higher credit scores.