Being too credit-shy can backfire

Fear of debt might convince some consumers to do without credit cards altogether. However, being credit-shy could hurt your financial future because you're not establishing yourself as a creditworthy individual, which can backfire if you want to borrow for a home, vehicle or other major purchase one day.

The importance of a good credit history

A credit card can act as a foot-in-the-door that lets you into the world of credit. If you get a card, the issuer will report your use of it to the credit rating agencies, which will keep a credit history file on you.

Lenders look at your credit history before deciding to lend to you and at what interest rate. If you have a "thin" credit file because you have not used credit before, you may not qualify for a loan or the lender may lend to you at a much higher interest rate than someone with an established credit history. That's because lenders want to know that others (like credit card companies) have given you a credit line in the past and that you have used it responsibly.

How to build a healthy credit history

Using your card regularly is a good way to build up a solid credit history, says James Jones, spokesperson for credit reference agency Experian.

"You don't need to get into debt to do this though," Jones says. "Simply using a credit card for regular purchases and settling the bill in full each month will help."

Some have a fear of credit, thinking it will cause them to rack up  big debts. However, this doesn't have to be the case.

"We use the term credit quite widely these days to cover anything you receive or use and pay for later, such as money, of course, but also a wide range of goods and services," Jones says.

So, if you're paying for your phone or electric bill by monthly direct debit or paying for an insurance premium in instalments, you're already using credit.

 "It's certainly not something to be feared," says Jones.  "But you do need to use credit wisely and take steps to responsibly manage your borrowing, such as checking your credit report from time to time."

Keeping an eye on your credit

Consumers can check their credit reports with any one of the three credit reference agencies: Experian, Equifax andCallCredit. A report will show you what lenders will see and whether there are any black marks on your report. Look for opportunities to strengthen your profile, such as registering on the electoral roll or having a household bill in you name.

If you've worked up enough courage to get a credit card and are determined to use it responsibly, place your application carefully, targeting a card you're likely to be accepted for. For example, if you've never had a card, you might not want to go straight for a rewards card with luxurious perks. A service like CreditExpert from Experian can help you get started by matching your actual credit history with suitable credit card deals.

Avoid making multiple credit applications. Credit card companies will check your credit history before giving you a card, leaving their footprint on your credit history. Multiple inquiries within a short timeframe will make you seem desperate for credit - and risky to lenders.