Could a credit card be the key to establishing your credit history and improving your score?

Establishing a good clean credit score from the ground up is essential to your financial future. Even if borrowing money isn’t required, applying for and responsibly managing a credit card can have an immense impact on one’s credit rating over a relatively brief time period.

What are your credit file and credit score? 

Establishing a credit record marks your first step into the financial world. Whenever you apply for something that requires a credit check – such as loans, cards, post-paid phone plans or utilities – it creates an entry in your personal file. Consequently, this is how you begin to build up and maintain your history of responsible money management.

Every time you experience a credit event, whether it be positive or negative in nature, the corresponding details are reported to one of the established credit bureaus and noted in your personalised credit file.

Information in your credit file includes:

• Your identity, employer, and addresses
• Payment history over the past two years (including missed payments)
• Credit accounts
• The age of your credit file
• Credit impairments and negative events (e.g. payment defaults and bankruptcies)
• Credit enquiries over the past five years

Your credit history serves as the basis for your credit score. If you demonstrate financial responsibility by maintaining a steady job, always making payments on time, and wisely applying for and managing existing credits – your credit score will likely be high. However, poor payment records or too many applications may indicate that you have difficulty with money management – meaning it’s more probable that you’ll have a lower than average rating in this area.

Knowing your credit score is vital, as lenders and creditors rely on it to decide whether you’re an eligible candidate for their services. If your score is high enough, you’ll be able to obtain lower interest rates and fees; whereas those with poorer scores may have more difficultly qualifying for the loan or incur higher costs. In some cases, unfortunately, even a low-credit borrower can see their application declined altogether!

How can you quickly build a credit score?

If you don’t have a substantial credit score or if your credit history is limited, it may be difficult to acquire funds when they are required and lenders will view you as a greater risk. This doesn’t mean that you have bad credit but unfortunately can make qualifying for lower interest rates and additional features more complicated than those with established histories.

By faithfully paying your energy and phone bills on time, you can not only keep a healthy clean credit score but also slowly boost it over the long run. To further bolster your credit worthiness, aim to provide as much evidence as possible that illustrates how capable you are of managing money and credit responsibly.

Applying for a standard credit card can be advantageous to your overall clean credit score. Fortunately, many banks and other financial institutions have developed cards specifically designed as one’s first experience with using plastic. Although they may lack the extras such as bonus points or cash rewards, these introductory products typically feature low interest rates and fees – something of great value when building strong clean credit score!

You can help protect yourself from being subjected to a debt cycle, in which interest fees accumulate faster than you are able to pay them off, by maintaining a relatively low credit limit. To get an accurate idea of the costs involved and when you should budget for them, use a handy credit card calculator.

Even if you’re not a frequent user of your credit card, the longer it stays open without any major credit issues such as late payments or defaults, the more likely it is to positively impact your history and score. Just remember to pay all applicable fees associated with the card, and do your best to avoid maxing out that credit limit on unnecessary purchases!

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