You may have been told from a young age by an older family member that borrowing money means you’ll get into debt and owe a bank interest, which is something to be very wary of. In this day of age, having a credit history is really quite essential. Should you wish to buy a property someday, it’s highly likely you’ll need a mortgage to pay for it. This is why every credit journey must start somewhere. It’s frustrating when you’re being denied by every creditor you approach for credit because of a lack of credit history. This article provides some basic guidelines to help you down the path to credit acceptance.
Consider applying for a credit card
If you’ve been rejected for credit in the past, it might have been because the cards you originally applied for required a high credit score for approval. We all need to start somewhere, especially when credit is concerned, so on that basis, consider starting off small and look for cards that require very little or no credit history.
- Student credit cards can be a great option for younger consumers who are looking to build a credit file. These cards often have high acceptance rates and come with attractive promotional offers and rewards. The downside is they usually have fairly low credit limits and higher interest rates.
- Secured credit cards can be great for building credit because almost any applicant can qualify based on their requirements. This is due to the customary cash deposit criteria which is the security needed to mitigate the risk of default for the issuer. In the event, you apply and are successfully issued a card, make sure the creditor reports the card to the credit bureaus so your positive payment history is reflected in your new file.
- Another viable option is retail credit cards, which are commonly used to help get a new credit file off the ground. They are a wise choice if you frequent and spend regularly in a particular shop. They usually carry low credit limits, so, therefore, a safe bet as long as you make sensible repayment amounts on the balance, as these cards tend to carry higher rates of interest than non-retail cards.
- Requesting to become an authorised user on a family member or close friend’s credit card is always another solid option to think about. The card history is already logged with the credit bureaus, so as long as you and the card-owner use it responsibly, it can really help the two of you. You also need to consider that the level of responsibility is shared and therefore if either of you misses a payment, or one of you has frivolous spending habits, it could hurt your credit score.
Like with all financial responsibilities, using a credit card is no different. It can be a very powerful financial tool when used in the right situation but can be equally dangerous if used irresponsibly. Make sure you thoroughly research all of your options to find the right type of card for your personal situation. Pay attention to the terms and conditions section of the credit agreement and ask the creditor to explain anything that isn’t clear to you. Reading the fine print around fees and interest rates is particularly important, not forgetting reward programs and other value-added benefits. Rule of thumb is to know exactly what it is you’re getting yourself into.
Be responsible with your credit
It’s a good feeling once you receive your first credit card. You feel empowered and reassured that you’ve been accepted for a line of credit. It’s important to make sure your credit profile gets the best standing start possible. Here are some basic tips to ensure you do:
- If you have the flexibility, consider paying the balance off in full each month, depending on how much you use the card. The fact is, you don’t need to carry a balance in order to build a credit rating. If you’re living within your means and not stretching yourself, paying the balance is a wise move, especially cards with lower credit limits and higher interest rates attached.
- Always pay your bills on time, a late payment can stay on your credit report for a period of up to five or seven years in some cases. A good way to avoid missing a payment is to enrol in autopay or set yourself reminders.
- Make sure you don’t max out your card. Don’t let the temptation of a spending spree get the better of you, because hitting your limit in the eyes of a credit bureau triggers irresponsible credit behaviour. It’s a good idea to try and keep the credit utilisation threshold below 30% of your available credit. This reflects well in the creditor’s eyes because it shows you use credit but aren’t dependant on it.
Remember the path to achieving a healthy credit score is a long one. Unfortunately, it takes just the once to hurt your credit score and the road to recovery can lengthy. Try to form good habits from the get-go and invest time to make sure you understand that credit health is important and the ramifications associated with not being responsible. The time and effort you put into building a solid framework will hopefully get you into the position of being able to get the best credit cards, loans and other perks associated with having good to excellent credit.