Your Credit − History in the Making
Setting up and keeping a good credit history is probably one of the most important financial responsibilities you'll have.
Your credit history and credit rating are key in your ability to buy a house or car, get a student loan, access utilities and more. A good credit history helps you get lower interest rates on future installment purchases and the less interest you pay, the more money you have to invest or include in your retirement planning.
What is credit?
Credit, or installment debt, is when you borrow money that you promised to pay back in a certain amount of time. It’s basically a buy now − pay later deal. Your credit history is determined by whether or not you hold up your end of the deal, like making all your payments on time.
How do I establish credit?
Apply for credit in a local or national department store. Charge a few small items and pay the debt in full on, or before, the due date and you'll be on your way to building a credit history. You may also be able to get major credit, like Visa or MasterCard, or a bank loan.
Keep these tips in mind when establishing credit:1
- Stick to a budget and leave space for emergencies
- Be disciplined about your spending and payments
- Pay more than the required minimums on credit cards each month
- Pay all bills on or before the due date
- Don’t get into more debt than you can handle
How can I qualify for credit?
When making a major purchase, like a car or house, you'll probably finance it through a financial institution. These lenders determine your ability to repay the loan, by looking specifically at your:
- Credit worthiness – Is your credit history good? Do you pay bills on-time?
- Financial means – Is your income big enough to cover the necessary payments?
- Debt structure – Is your existing debt higher than your income and other obligations?
Your right to credit is protected by the government through the Equal Credit Opportunity Act. This act prohibits credit discrimination and defines your rights:2
- You cannot be denied credit based on your race, sex, marital status, religion, age, national origin, or receipt of public assistance
- You have the right to have reliable public assistance considered in the same manner as other income
- If you are denied credit, you have a legal right to know why
Establishing a good credit history takes commitment and a realistic grasp of your current financial situation. Use credit in moderation and never overextend yourself.
1Women's Financial Network, www.wfn.com, 2003
2Federal Trade Commission, "Credit and Your Consumer Rights," 2003