To build credit history, a person must apply for credit. Credit history is build by acquiring credit such as a personal loan, car loan, mortgage, credit card, etc.  But why should you strive to build your own credit history?

Sometime soon, you may need to obtain financial help from a bank or lending company. For example, when you’re ready to buy a house or car, you might need to borrow a loan if you can’t pay it in cash on your own.

Lending companies check credit reports to determine whether the borrower is capable of handling debt and repayment. Based on your credit score, you may be able to enjoy a low rate on your loan. On the other hand, lack of credit history may cause your mortgage application or car loan application to be rejected.

Use Debt to Improve Your Credit History

One way to establish credit history is to apply for a credit card account. As soon as you get approved, utilize your account to build up your credit rating.  Keep in mind that all your activities on that account will be reported to the credit bureaus.

What makes up a credit score? The FICO score is calculated based on five determinants: payment history, credit utilization, length of credit history, types of accounts, and public records.  Out of these determinants, payment history makes up the largest percentage (35%), followed by utilization of credit (30%).

Clearly, prompt submission of payment is important to maintain good credit.  The next most important factor is how you utilize your allotted limit. For example, if you own a credit you must keep credit usage minimal or at least below 30% of your credit line to maintain a good score.

Some people may think that owning several credit cards will enhance their rating. However, it’s not about the number of credit cards you own, but the way you handle each account. Even though you own multiple credit cards, if you’re frequently late in submitting your payments or if you have the habit of exceeding your credit limit, your credit score will surely drop.

[GOOD READ:  How Can I Start Building My Credit History? ]

Aside from prompt payment, a better strategy to build a good score is to open different types of accounts. For example, aside from having one or two credit cards, you may also apply for a personal loan, a mortgage loan, or a car loan. This will show how capable you are of managing different types of debts.  Future creditors would be more confident to extend you a new credit line if you have different types of accounts in good standing.

About the Author

Melanie Mathis is a credit analyst and a writer for 8 years. She has been participating in the programs of NHBS, Inc such as their continuous effort in giving out Free Credit Repair and Building Ebook. NHBS also has a list of recommended Credit Reports Online

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About Melanie Mathis

Melanie Mathis is a credit analyst and a writer for 8 years. She has been participating in the programs of NHBS, Inc such as their continuous effort in giving out Free Credit Repair and Building Ebook. Connect with Melanie Mathis on Google+