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Your Credit History

money manHow you handle money says a lot about you. Credit reporting companies track your payment history and supply this information to credit card companies, banks, and other lenders. They use the information to determine if they should loan you more money. When you turn 18, you are completely responsible for what turns up in your credit report.

A credit report contains all your personal information, previous addresses, social security number, current and previous employers, and estimated income. It contains detailed information about each credit card account you own: the type of account, the balance you owe, and your payment history. Your credit report also includes information on any loans you have – like student loans for college – or if you ever declared bankruptcy. It is this history that credit reporting agencies use to assign you a credit score. This score determines the interest rate you will pay on any future loans.

It is a good thing to know what your credit report says. Check it once a year! Go to the Federal Trade Commission web site for information on getting a free credit report.

Credit reports and employment

After age 18, when you apply for a job, a background check often includes a check of your credit report. The three major credit-reporting agencies provide a modified version of the credit report called an "employment report." An "employment report" is not a complete report. However, it includes information about your credit-payment history and other money habits. Current or potential employers might draw conclusions about you based on this information.

Unfortunately, a bad credit report can work against you in your search for employment. Employers often use your credit history to judge your level of responsibility. If you are not reliable in paying your bills, then they question if you will be a reliable employee.

In addition to your payment history, an employment report typically includes information about your former addresses and previous employers. Employers can use this as one way to verify the accuracy of information you provide on an application or resume.

Building a credit history

Building a solid credit history is important. How do you do that? By getting and using a credit card wisely. A good credit history will help you get a good rate for a car loan and eventually a mortgage. Those with good credit pay less for loans.

The three most common mistakes

Not using a credit card wisely. Controlling when you use a credit card and when you pay cash are the keys to good money management.

Being disorganized about paying your bills. Frequently or regularly paying your bills late will quickly damage your credit score. Setting up automatic payments from your checking account for your cell phone bill and other monthly bills can make paying on time easier.

Paying only the minimum payment on your credit cards. You do NOT have to carry a balance on a credit card to build a credit history. Paying the full balance on time will build a good history. Unexpected expenses do happen, and you may have to carry a small balance from time to time. But don't fall into the trap of paying only the minimum payment for an extended time. The longer you take to pay off your debt, the more it will cost you. Check out I Paid How Much?