If you are looking to build your credit history, it is never too early to get started. A good credit rating will play an integral part in multiple aspects of your adult life including getting a credit card or being approved for a mortgage, personal or even the amount of student finance you could receive.The sooner you start building your credit score, the better your credit rating will be.
When should I start building my credit history?
Building up a credit history from the age of eighteen, if not sooner, can be hugely beneficial for your financial future. Unfortunately, few people are aware of this as financial health is something rarely taught in schools or to millennials or the gen z demographic. As a consequence, people often find out at a much later stage that they should already be building credit. Luckily, it is never too late to get started.
If you are able to, you should start building your credit when you are 18 years old and should start to learn about what defines a good credit score, best practices and the impact of your credit score.
For example, your credit score will affect your ability to take out a credit card, securing a loan or mortgage or perhaps even getting a job or a place to live. Therefore, the earlier you are able to learn about this and get started, the better it will be for your future financial situation.
Why is it better to start building a credit history early?
The earlier you start to learn about building a good credit score and the best practices involved, the more likely you are to avoid decisions which could negatively impact your credit history.
One of the key factors of a credit score is the length of the credit history. Therefore, logically, the earlier you start to build your credit history, the longer it will be and subsequently the better your credit score will be.
Another benefit of starting your credit history earlier is that it leaves room for errors. Mistakes are inevitable but the earlier you make these and learn from them, the more time you have to build your credit positively afterwards and ensure that any errors in your credit history are long in the past. If you make a mistake on your credit report, the longer ago that it was, the less likely it is to be visible by the time you come to make important financial decisions like applying for a credit card or loan.
A person’s credit history will demonstrate to lenders how creditworthy you are and it acts as an important figure for lenders when determining how much to lend you and under what conditions. For example, if you have a better credit rating, you could qualify for better conditions including lower interest rates and lower fees for loans, mortgages or credit cards.
What practices positively build your credit score?
As soon as you start to build your credit score, you should get into certain habits which will stand you in good stead as you go forward. The best things you can do are to pay off your monthly statements on time and, as much as possible, pay back the full amount. Additionally, you should aim to keep your credit utilisation rate low so that you are spending a maximum of 30% of your available credit.
How does building credit benefit you in the long run?
There are many ways that building good credit can benefit you throughout your adult life.
Firstly, you are more likely to be approved for a loan. At some point of your life, it is likely that you will want to borrow money be it via a credit card, a mortgage or some other form of loan. If you have a strong credit rating to fall back on, you are far more likely to be approved for this loan. This is because good credit shows you to be a reliable borrower who can pay back loans on time.
Secondly, you could also benefit from better rates if you have a higher credit score. Lenders are likely to look favourably on applicants who have a stronger credit rating. As a result, it is more probable that lenders will approve your application with lower interest rates.
Not only might you qualify for lower interest rates, you could also benefit from more flexible loan terms depending on the loan provider. Applicants with a good credit rating and a long credit history demonstrate to lenders that they are low-risk borrowers. This means that there is more room for negotiation and you could benefit from a higher credit limit, a higher lending cap or a more flexible repayment schedule.
Finally, the better your credit rating and the longer you are a client of a certain credit card provider, the more likely you are to benefit from bonuses such as points schemes, rewards and credits. This will likely depend on your credit card provider but invariably your loyalty will be rewarded, with the best perks reserved for those with the highest credit scores.