Using credit cards to build your credit profile

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Credit cards can be a way to build a strong credit history

When it comes to saving up for a big purchase, many people will turn to some form of credit to help them on their way. However, one of the barriers to getting the credit you need could be your credit history.

If you haven't applied for a loan or credit before, you may believe that you automatically have "good credit". A credit history doesn't just denote 'negative' events, it also acts a recommendation for credit providers where you have displayed good credit behaviour in the past.

Building a strong credit profile will stand you in good stead when the time comes to apply for credit. The good news is that you can build a strong credit history without digging yourself into debt.

Swiping your way to good credit

While credit cards' reputation may precede them, they can actually be an excellent way of demonstrating to credit providers that you can handle the responsibility of borrowing capital and making your repayments on time.

"If you are the type of person who has never had a credit card, a phone contract or any other forms of direct debits, then don't be fooled into thinking your home loan application will be easy, having no credit is sometimes just as bad as a poor credit rating," advises Bank West1.

Bank West goes on to continue that for individuals without a credit history of any kind, it's a good idea to take out a credit card - as long as you use it wisely1.

Staying on top of your credit history

You can do this by only spending as much as you know you can easily pay back, even if it's just buying a few items per month. By paying your credit card payments on time, you will begin to see a definite change in your credit standing.

"Get yourself started with a low credit limit, benefit from no annual fees if you're studying and enjoy all the functionality of a normal credit card," advises the Commonwealth Bank of Australia. "Just make sure you keep on top of your repayments."2

The good news is that you can keep track of your credit reputation by requesting a copy of your Equifax credit report. You may also wish to consider a monitoring service that allows you to keep track of any changes to your Equifax credit report via email updates through a subscription package.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.

1Bank West, How to improve your credit rating and strengthen your home loan application. Accessed June 2015.

2Commonwealth Bank of Australia, Building a healthy credit history. Accessed June 2015.

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