How Your Banking Habits Affect Your Credit History

Banking Habits That Can Compromise Your Credit Score

Learn About Credit HistoryBuilding positive credit as early as possible is the best thing anyone on the brink of independence can do for themselves. Getting a head start makes it easier to obtain a line of credit when you really need it further down the road. If you wait too long to take your first stab at getting a credit card, lenders can deny you for not having enough debt — even worse, that rejection will show up on your credit report and pull down your credit score. While the notion seems backwards, credit card companies don't want to take a blind risk.

Establishing revolving debt, or debt that fluctuates each month, like a credit card balance, is extremely important to creating positive credit. Lenders want to see that you have a history of spending money and being able to pay off those debts in a timely manner. Getting a low-interest credit card and using it sparingly is the best route to personal revolving debt.

A short-term approach to financial freedom — like avoiding opportunities to build a solid credit history — can prevent you from getting credit when you really need it, hurting your future financially.

Debit cards aren't always the answer

Many college students and young people out on their own for the first time rely on debit cards as a credit card substitute, but this practice can actually hurt them in the long run. While using a debit card does force you to stay within your means and helps you save money by avoiding interest fees, you're not creating a credit history of any kind.

Don't piggyback on someone else's credit

Parents often add children or spouses as "authorized users" to their card. This gives the authorized user free rein to use the credit card with none of the responsibility for paying the bill, which lies squarely on the original cardholder's shoulders. It's an easy way for students to quickly earn a good credit rating. However, late payments will negatively affect everyone associated with the account, regardless of who's responsible for paying the bill. A secured credit card account may be a better choice and help avoid a poor credit history.

Get a secured credit card

People having trouble obtaining a traditional, unsecured credit card might want to build their foundation with a secured credit card. A secured card requires cardholders to offer collateral upfront to guarantee payment. It allows you to save and gain a line of credit at the same time. If you provide $300 upfront, your secured card will have a $300 spending limit. When you choose to cancel, the company returns that initial deposit to you, minus any outstanding debt. 1

  1. "Secure Credit Card List: Add Accounts, Build Your Credit Report History, and Improve Your Credit Score (Increase Your Savings Too)," The Credit Scoring Site


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