Establish and maintain a credit history. No matter your life circumstances, establishing and maintaining a positive credit history is more important than ever before. In difficult economic times, credit scores strongly affect your ability to achieve your financial goals – whether you need to open a credit card or qualify for a home or auto loan.
Pay your bills on time. At any age, paying your bills on time is the single most important contributor to good credit. Late payments negatively affect your ability to get credit since they indicate a stronger likelihood that you will make late payments again or will be unable to pay your debts in the future.
Establish good credit while you are young. Use your 20’s as a time to demonstrate your creditworthiness and build a positive credit history. Since the length of your credit history is factored into your credit scores, it is important to start establishing credit as soon as possible.
Open a credit card account, and use it wisely. Credit cards, when used responsibly, are often the best way for a young person to begin establishing credit. Once you have opened a card and learned to manage it well, consider opening some additional accounts. While this can decrease your credit scores in the short term, increasing your available credit and keeping your balances low will decrease your utilization and, as a result, improve your credit score in the long run.
Take out an installment loan. Consider taking out your first installment loan, such as a car loan. Making timely payments will help demonstrate that you can manage different types of credit. Having a variety of accounts and a low utilization rate over a longer period of time will help you qualify for larger lines of credit at better rates.
Have someone cosign if necessary. While recent legislation has made it more challenging for those under 21 to obtain a credit card, it is still possible to begin establishing credit at a young age. Those under 21 can consider asking their parents to add them as authorized users on an existing account or to cosign for a credit card.
Demonstrate stability. When preparing to make a major purchase, it is imperative to demonstrate stability in the three to six months leading up to it. While it is important to improve your scores before purchasing a house or a car, be careful not to make too many big moves right before your purchase. For example, avoid opening or closing accounts or moving large amounts of money around.
Plan ahead for major credit purchases. If you need to improve your credit scores, give yourself at least six months before a major purchase. Recent inquiries on your credit report can hurt your scores so don’t open any new accounts during the months leading up to your purchase. Make an effort to catch up on late payments and pay down your balances to see the fastest improvement in your scores.
Review your credit report regularly. Be sure to pull a copy of your credit report on a regular basis (and especially before major purchases) and fix any errors. If you come across any inaccurate information, the fastest way to get it corrected is online through the credit reporting company that provided your credit report. Creditors are allowed 30 days to respond to any claims, but many times, the dispute can be resolved before then.
Change credit focus as you age. As you reach midlife, you should shift your focus to paying down major purchases (such as a mortgage) and saving for retirement. While consumers of all ages should aim to live debt free, it is even more important the closer you get to retirement age.
Stay diligent to prevent fraud. Older Americans should remember to stay engaged with their credit histories. Some people stop opening accounts or using credit on a regular basis as they age, which means they aren’t checking up on their credit histories as often. This can make older generations more vulnerable to fraud.