Developing Your Credit History

Developing a healthy credit history is important for many reasons. A poor or non-existent credit history can hinder your ability to qualify for a loan, pay lower insurance rates and even get some jobs! Starting with your first credit card everything you do that involves credit is part of your personal credit history. To have a beneficial credit history, you have to use credit correctly. But exactly what is “correct?” Here’s a guide …

Starting Out

If you’re just starting out, begin with one credit card and don't open up too many cards within the first few years. The more credit you have, the more you may end up using and the more payments you’ll have to make. What’s more, too many inquiries into your credit and/or new credit cards can have a negative impact.

Credit Report

The major credit bureaus keep files on your financial activities that impact your credit. You are entitled to one free credit report within each 12-month period from each of the three major credit bureaus. The bureaus run AnnualCreditReport.com where you can get your free credit report. Your credit score is available for an extra $10 fee—see below. (Note: If you dispute something on your report you can request an investigation and/or ask that a note be included in your file.)

Your Credit Score

As part of your credit report, your credit history is “graded” and this becomes your credit score. Maintaining a good credit score is a key factor in your ability to qualify for loans. How is your credit score determined? There are several factors:

• Amount of open credit you have available
• Types of credit you have
• Timeliness of your payments

Each credit-reporting agency has a slightly different version of your credit score, but these ranges will generally apply:

700 – 850: Very good or excellent
680 – 699: Good
620 – 679: Average/OK
580 – 619: Low
500 – 579: Poor
300 – 499: Bad

If you are just starting out establishing credit, or need to improve your credit score, here are a few things to keep in mind:

• Avoid maxing out credit lines on cards or loans.
• Avoid applying for too much credit. (All those department store credit cards could count against you.)
• Consistently make all your payments on time.
• If you carry a balance, pay it down on credit cards or loans.
• Satisfy any overdue bills.
• Let your accounts age. Leave your oldest accounts open since they help increase your credit age and build good credit.

Remember, Bank of Luxemburg will work with each customer on an individual basis to find the best loan option for you, even if your credit score is not ideal.