When making the decision to share your life with another, establishing a good credit rating is one of the most important steps to building a stable life together. A credit rating sets the stage for your financial stability. Eighty percent of a credit score is based on three factors: your payment history, amounts you owe, and the length of your credit history. Knowing how to manage these three factors is key to building a good credit rating.
Order your credit reports from each of the three credit reporting companies: TransUnion, Equifax, and Experian. You can get all three by going to annualcreditreport.com (see Resources). When you receive these reports, each should come with a guide for reading it.
Ensure that all the information in your credit report is correct. If there are any loans, credit cards, or other debts that you don’t recognize, contact the credit bureau company and report the inaccuracy. The telephone number of the credit agency should be prominently listed on your credit report. The company will investigate the information and remove inaccurate information.
Review your payment history. You will get the highest possible score in this category if this section shows all your accounts are “paid as agreed.” However, another important factor is how long it has been since the last late payment. If you have made late payments, it will take at least six months for your score to improve, but the late payment will remain on your credit report for seven years.
Limit the percent you borrow on each credit card you own. It's best to keep fewer than five credit cards, and to be sure the balance on each of your credit cards is a small proportion of your credit line.
Use credit cards to extend the length of your credit history. Some people may have told you to stay away from credit cards. What's more important is to stay away from bad spending habits. Applying for a credit card at a young age can help you build a solid credit history early on. Of course, this assumes you use the credit card responsibly. Use your credit card to make small purchases, and then paid the bill in full every month.
- In many relationships, one person is the spender and the other is the saver. The spender should use these tips to learn how to maintain a good credit rating, while the saver may need to increase his credit card usage in order to establish a solid payment history.
Sara Huter is a professor of economics. Her background also includes risk management in the banking and energy industries with expertise in credit scores. Huter received an M.B.A. in finance from Texas A&M University and a B.S. in information systems from Kansas State University. She has been writing for over five years with work at Popsyndicate.com, WickedWordSmith.com and Simplejoy.com.