New consumers may wonder why a "few" missed payments when they first start using credit could have a negative effect on them several years later. They may also express puzzlement when they're turned down for a car loan or a new credit card. What they need to understand is that their full history of repaying debt affects not only getting a credit card, but consideration for a coveted job, as well.
Significance
A good credit history is a consumer's path to applying for and receiving loans for a home or vehicle. When consumers are legally able to apply for credit cards and small-item loans, they begin building their credit history. If they make their payments on time every month, they're on the right track toward building a strong credit history. If they develop a history of late payments or delinquencies, they will find it harder to get credit when they need it, according to Liz P. Weston of MSN Money.
Function
Weston states that consumers who are working to build a good credit history need to keep in mind that a good history will help them when they are filling out an application to rent an apartment, applying for a job, looking for lower monthly premiums on health, vehicle and life insurance and for a cell phone contract.
Effects
If a consumer applies for a credit card, is approved and begins to develop a spotty repayment history, she'll find some doors closed to her, such as consideration for a job she has been wanting. If she finds she needs to buy another vehicle, obtaining a loan will be much more difficult because the finance company or her bank will pull her credit report. Upon seeing a history of late payments, she'll be denied a loan for the vehicle, according to Investopedia.com.
On the other hand, if she is careful to send each payment in on time or pay online well before the due date, her credit history will make it much easier for her to obtain the loan for the vehicle or consideration for the job she has been seeking. Thus, while making payments on time every month may not seem very important, it can have a strong impact on a consumer's future.
Considerations
When a consumer receives credit from a bank, credit card company, store or vehicle dealership, he needs to treat the credit privilege carefully and ensure he makes every payment on time every month.
It isn't only credit payments that affect a consumer's credit history---his record of making utility payments and rent payments on time every month are reported to the credit reporting bureaus and this becomes a part of his credit history, according to Weston.
Benefits
While it may not seem important in the long term, a good credit history makes it much easier for a consumer to achieve her goals and dreams, according to Weston. If she is seeking a job in her field, potential employers will make inquiries on her credit report and, if they see a spotless or nearly-spotless credit history, her changes for consideration for the position improve greatly.
If she is planning to become a homeowner so she can stop paying rent, a good credit history makes it possible for her to realize the dream of owning real estate.
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