How to Build a Good Credit History

My second article at the Penny Thots site, 6 Key Steps to Building a Good Credit History, went live last week and I thought I'd share here, as well. The steps I list are:

1. Get a Bank Account
2. Get a Steady Job
3. Get Some Credit
4. Make All Your Payments on Time
5. Keep Your Credit Card Balances Low
6. Monitor Your Credit

Under the third step, Get Some Credit, I suggest three ways to do so:

• Get a Credit Card on Your Own
• Get Added to a Credit Card Account
• Get a Co-signer

Now, for my readers here, I'd like to clarify. I am NOT suggesting that anyone co-sign any loan - EVER. I don't care who it is or what it's for. NEVER CO-SIGN.

And I'd also recommend against adding anybody to an existing credit card account, except MAYBE under extremely limited and tightly controlled circumstances.

So why did I add those things to my article at Penny Thots? Simply because those are ways to build a good credit history, which is the subject of the article and I want to be thorough. I guess now I need to work on an article or two warning against co-signing and adding someone to your credit card account.

How to Keep Your Unused Credit Cards

Do you have credit cards that you never use? On the one hand, this is good – it means you’re not racking up debt. On the other hand, a significant portion of your credit score is based on how much credit you have available in comparison to how much you’re using. So if you have an unused credit card, the available credit on that account is helping you. If the issuer cancels the unused card, your credit score will suffer.

Does This Apply to Me?
But wait a minute – I have no credit card debt as I use my cards as a convenience only and pay each in full each month. If you're like me, does having an unused credit card cancelled really matter? Actually, it could. Remember – the higher the amount of unused credit you have the better your credit score.

I’ve actually been worrying about this periodically as I have a VISA card that hasn’t been used in many years. It’s through a credit union so I don’t know that I’m in danger of being cancelled but the credit limit on that card is close to one-third of my available credit. Should the card be cancelled, that’s a big hit on my credit-to-debt ratio!

A Simple Solution
Suze Orman addressed this very issue in the November Costco Connection. A gal wrote in about receiving notification that one of her credit cards would be cancelled at the end of the year due to lack of use. Suze’s solution? Contact the card issuer and ask if they’ll keep the card active if it gets used once or twice a month. If so, pay one or two recurring expenses with the card such as the cable bill.

So why don’t I use my credit union issued card currently? Because years ago, every time I got the bill it looked like junk mail and I was afraid I’d toss it accidentally. So I just quit using the card. Fast forward to the present – I’m totally into paperless billing and don't get bills in the mail anymore. I guess it’s time to rethink my credit card usage and maybe use that card for some recurring expense as Suze recommends.