What does credit history length mean?

sarahheller By sarahheller, 20th Feb 2015 | Follow this author | RSS Feed
Posted in Wikinut>Money>Debt

Your credit score is made up of five parts, including the length of your credit history. What is this, and how can you work to improve it?

Improving your credit history

Plenty of people who are just starting out their financial lives have been denied for a loan because they don't have a long enough credit history. One of our readers, Matthew Elgac, asked us what it meant when the car dealership he went to told him that he "was a ghost". Apparently, they used this as the reason why they couldn't give him the zero percent financing they had advertised on new cars. They were willing to offer him a 15% interest rate, however.

A big part of convincing a bank to take a risk on you is showing that you have a good history of paying back your loans. If you've never taken out a loan before, that can be a problem. Fortunately, there are ways that you can improve this part of your credit history.

1. Take out a small loan. A personal loan can work, but make sure that the company you pick will report to the major credit agencies. If they run your credit before giving your the loan, then odds are they're going to be monitored. The problem with this approach is that it can be expensive. Personal loans have some of the highest interest rates in the credit market. The companies that offer these loans have a reputation for being hard to deal with. They tend to take advantage of people who are desperate for money by adding a lot of fees and restrictions on their loans. If you choose this method, get the loan paid off as quickly as possible.
2. Open a credit card. Thanks to recent legislation, it's a lot harder for young people to get a credit card without a source of income. Even then, the credit limit you're assigned will be based solely on your income; student loan income and parental income cannot be taken into account. Once you have a credit card that is solely in your name, however, your credit report will mark if you pay the bill on time every month.
3. Open up utilities in your name only. This is one of the best methods we know of to get a credit history started. Instead of taking out a loan that requires you to make payments, just start the electricity or water at your new place in your name. If your utility company requires a Social Security number to do this, odds are they report to the credit bureaus on your payment status. That first report is all you need to get a credit history started.

This method can work for minors, but a growing number of utility companies are requiring extra paperwork for this (especially if custody is shared between parents). Cell phone companies seem to be the best bet for starting a child's credit history, but expect to pay a big deposit. In fact, most companies will require a deposit from someone with no credit history, even if the bill was previously in the name of someone who had excellent credit. The lack of a credit history is a risk for the company, so they'll want at least one month's utility payment on hand. Fortunately, this is refundable when you shut off the utilities as long as your bills are paid. Finally, don't be surprised if they require a contract. These companies don't want to got through the hassle of getting everything set up just to have you dump them in a month.

If you can afford the deposit, this can be a good way of getting a child's credit established before he or she leaves home. Just make sure that the bill is paid on time every month. If you miss a payment, all the effort that went into this will be wiped away with the bad note the utility company leaves on their credit report.


Credit, Credit History, Credit Score

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author avatar Kingwell
21st Feb 2015 (#)

Great tips. Thank you for sharing.

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