Why You Must Build a Better Credit History

Right now, when you’re smothered by debt, you may not be able to think about improving your credit history — you’ve got too many other immediate concerns. But tuck this topic into the back of your mind because when you’ve had money troubles, rebuilding your credit history should be one of your first goals. Having a positive credit history is essential to getting new credit with attractive terms.

The credit rebuilding process is quite simple: You get small amounts of new credit and repay the debt on time. For example, you get a MasterCard or Visa card, use it to purchase some goods or services you need, and pay off your card balance according to your agreement with the card issuer. You should also borrow a small amount of money from a bank and pay off the loan according to the terms of your agreement with the lender.

As you do these things, you add new positive information to your credit history. Meanwhile, the negative information in your credit history gradually begins to disappear because, with a few exceptions, most damaging credit record information can be reported for only seven years and six months. As time passes, your credit history will gradually contain more positive than negative information, assuming that you manage your finances responsibly.

Why is rebuilding your credit history so crucial? First, if you have a negative credit report, you won’t qualify for a credit card with a low interest rate, and you’ll have trouble borrowing a significant amount of money from a bank. Here are some other potential consequences of a negative credit history:

• Potential employers who review your credit record as part of the job application process may not hire you. You could also be denied a promotion with your current employer if it checks your credit report as part of the process.
• Life insurance companies may penalize you by charging you a higher premium or not selling you as much insurance as you would like.
• Landlords may not want to rent to you.
• You may not be able to get a security clearance or certain types of professional licenses.

Avoid companies that promise to rebuild your credit or promise to presto chango make all the negatives in your credit history disappear. Not only are you wasting your money, but (depending on the tactics a credit repair firm uses) you also may violate federal law if you do what the firm tells you to do.