How to Build Credit History and Stay Out of Debt

by : Scott Stadler

Building a rock solid credit history and staying out of debt go perfectly hand in hand. Many times the perception is that debt is not only a reality, but also a necessity in order to build credit. Technically there is some truth to this, but building an excellent credit history is more than just pumping up a numerical score without regard for any other well-rounded financial practices. Here's how to build credit history and stay out of debt at the same time.

Start With Credit in College

Building a credit history is much easier when starting off on the right foot early. The college years are the perfect time to not only sign up for checking and savings accounts, but also to apply for a first credit card. Student credit cards are usually much easier to qualify for than those intended for other demographic groups and building credit does require using credit. It's a natural fit, but only if used responsibly and not just to rack up a big balance without having an income to pay it off.

Pay Every Bill Early

Paying every bill early will not only prevent late fees and negative marks on the credit report for tardy payments, but also encourage a spirit of financial peace. Waiting until the last minute to pay bills often has an adverse effect on one's sanity. Paying early helps to reduce any chance of slow mail or other miscellaneous issues that can arise from that last minute mentality. And this does count for every single bill, not just credit cards - utility bills, phone bills, car loan payments, rent, house payments, and many other major expenditures all report on time payments to credit agencies.

Keep Balances Low

If getting out of debt all at once is an impossibility, it is still a good thing to do everything possible to keep any balances on credit cards or loans at less than a third of their maximum credit limit. Using too much of this percentage can have quite a negative effect towards building really excellent credit history. On the other hand, when there is no debt at all, making charges and then paying them off every month in full can also build credit history.

Watch Your Credit Reports

You could be doing everything just right, but erroneous or fraudulent details might still be showing up on your credit report, making all the effort a waste. As an important part of overall financial responsibility, checking credit reports on a regular basis is a must - especially with the increase of identity theft these days. Perfect credit can be literally destroyed overnight by fraudsters, but the good news is it can often be prevented or reversed by keeping a keen eye on the reports.

Again, it is very possible to build credit history and stay out of debt at the very same time - it just takes a little bit of extra effort!