Why Building Credit is a Necessary Part of Life

by John S. Pubisher

More and more young people are applying for credit compared to a few decades ago. Even if the need to take a loan right now is not there, an individual may in the future need to purchase a vehicle or a home and without sufficient savings, good credit may be the stepping stone to a much needed credit facility. Having good credit for an individual means that they can be trusted to return money owed to them. While it was previously considered a preserve of people in stable employment, good credit is now used to assess how credit worthy an individual is regardless of how old they are.

For most people, being in debt is frustrating and agonizing because every financial decision made must take into account ways to settle the facility. This is one of the reasons most young people get through their twenties without ever taking a loan even if they had so desperately needed it or were able to finance it. With time, it has emerged that financial stability is not certain and it is better for people to have good credit which they have no use for, than no credit score at all.

Paying in cash is an attractive option of getting through life without any liability and even in hard economic times, some people still prefer this option of settling their bills and financing their projects. Most people appreciate the peace of mind that comes with having to live a debt free life until they realize that having some sort of credit history puts them way ahead in terms of qualifications when making major life investments. Some people argue that building good credit should begin in the twenties but if there is a chance to do it earlier, then it should be embraced. What score is good credit when starting out? This is not a question that some people would like to think about simply because they think that they will never be in need of good credit anyway. It may come as a surprise but getting a loan is not the only thing that requires building of a good credit score; calculation of insurance premiums, application for occupancy at a residence and job screening is some of the other areas where a good credit score is needed.

Does it sound unfair that one would fail a job interview just because they missed a credit card payment? Unfortunately, it is not easy to trust people these days and everyone is trying to find reasons not to be suspicious of each other. It is one thing to be aware of what score is good credit and a different thing getting to that level where lenders and other people can trust you with their investment. Assuming that an individual has never had a credit facility in their life, it is possible to build average to good credit within a 2-year-period and 7 years for an excellent score of about 750 and above.

Ways to build credit fast

For someone starting from scratch, 2-7 years is the average time period required to make a positive impact on a credit score. Taking a single credit facility at a time is recommended but faster results can be achieved if different account types are worked upon at the same time. For instance, servicing a loan and repaying credit card utility at the same time has more impact on credit scored that either one of these separately. The longer the period of time a borrower has had credit, the better it is for their credit score.

With time, these two accounts can upgrade to three and then to four and so on. This strategy will help to accumulate more points over a short period of time provided that the facilities are paid in full and without delay.

It is not going to add value if one of these many accounts does not have an active reporting line with a credit bureau. Having good credit can only be established if repayment history and account activity is reported. Credit bureaus keep a database of all accounts that have been extended credit facilities and every now and then illustrate the diligence of the borrower using a 3-digit number.

Achieving good credit may take time but the benefits are worth the while. Everybody can take a loan from the bank or any other lender but only the reliable and trustworthy ones will be able to keep their end of the bargain. What score is good credit? It depends on the sacrifices an individual is willing to make.