Establish Credit Early On
Many young adults face a problem when they begin applying for loans and credits of not having any credit history. If your credit report does not contain at least one account that has been active for the past six months minimum, there will not be enough information to calculate your credit score, meaning you can’t demonstrate responsible credit behaviour and will likely struggle to obtain new loans or credit cards.
When you have held credit accounts for a long period of time, especially if the credit history is positive, you demonstrate that you have good past behaviour with credit and are a good candidate for credit cards and loans. Generally speaking, the longer you have held credit, the higher your credit score will be, as long as you do not have history of late or missed payments and a good debt-to-credit ratio.
When determining the length of your credit history, credit scoring models often look at:
- The age of your oldest credit account
- Amount of time since your newest credit account was opened
- The average age of all of your accounts
- Amount of time specific accounts have been opened for
- Which accounts you have used recently
Although it is not harmful to have multiple credit accounts open, it can be damaging to your credit score if you open too many in a short amount of time as this can actually lower your average credit age and shorten the length of your credit history.
Some ways that you can establish credit when you don’t have a credit history, are through a secured or student credit card, a secured loan, becoming an authorised user on a credit card account, or getting a co-signer on a credit card account.
Don’t worry too much about having a young credit age as you can still have a good credit score if other factors such as your payment history and level of debt are positive and well controlled.
Has our credit score series has made you curious to know more about your credit score?
You can access a detailed copy of your own credit report through CheckMyFile.*
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