Establishing Good Credit

These tips will help you establish and maintain a healthy credit history:
§                     Open an account. The only stumbling block as serious as poor credit history is no credit history. To receive an automated credit scoring, you must have at least one account that's been open longer than six months and shows activity within the past six months. (On-time utility and rent payments may apply.) To establish credit, start by requesting a credit card from your bank; that will trigger other offers.
§                     Don't go crazy on credit. Don't rush to open multiple accounts just so you can pay them off to raise your credit rating. Lenders see too many credit applications as a sign that your finances might be overextended. Applying for new accounts actually lowers your rating, since it lowers the average length of your account history—and, especially if you're new at using credit, it signifies risky behavior.

§                     Pay down before saving up. Lots of savings or a high income may help you with a down payment, but if your credit history is questionable, you'll be lucky to reach that point. Lenders want a track record of responsible debt payment—that's how they make their living. Make a habit of paying your bills, preferably in full but always on time. Paying down debts also saves you more on each dollar by reducing high interest payments.

§                     Minimize credit checks. Whenever someone requests your credit report, it appears in your credit history. According to Fair, Isaac, you can order copies of your own report from credit reporting agencies without worry; they even advise that you do this annually to check its accuracy, especially before a large purchase such as a house or car. But it could be a red flag if too many loan officers, credit card companies, or car dealerships are requesting your credit record.

§                     Don't take it to the limit. Lenders are wary of too many cards, but a bigger warning sign is even one account that's maxed out; they see it as a sign that you're overextended. The ideal is to use only one or two cards with medium balances that you pay on time (remember, punctuality is more impressive than full payments). On the other hand, if your debts reach the limit on one or two cards it's better to redistribute lower balances over several accounts.

§                     Hold off on purchasing big "toys." Lenders like low debt, so unless yours is very low, hold off on charging a car, a boat, appliances, or large furniture until after you've closed on a new house.