Every financial decision you make may impact your credit score and your ability to get a job, loan, credit cards, basic utilities and services, even rent an apartment or lease a car. Good financial choices help lenders and businesses see you as low-risk. You'll be more likely to receive financial opportunities, including higher credit limits and lower interest rates.
Credit scores change. If you've never had credit or you've made financial mistakes, wise decisions and responsible actions, over time, will lead to a positive credit report and financial benefits.
Are you wondering how to establish credit that will improve your credit report? You've come to the right place.
How to build credit history that benefits you:
The length of your credit history is a key factor in determining your credit score
Lenders assume you don't plan to live within your means when you apply for a lot of credit in a short period of time
Open store charge card or credit cards to build credit
Pay your balance in full each month or keep your balance low. If you don't qualify for a store charge card or credit card:
- Open a secured credit card. It may allow you to use your money to establish a credit history. (For example, you contribute $300 to the card; your credit limit is $300.) Before opening a secured credit card, confirm your payment history will be reported to the major credit reporting agencies and consider fees, interest rates and the consequences of default1
- Have someone cosign your account or installment loan
- Ask a family member or friend about becoming an authorized user on one of their accounts. Credit activity on the shared account will be reported in the primary cardholder's name and may be reported in the authorized user's name. Use caution. Poor decisions may affect both you and the primary account holder, and vice versa
- Don't abuse the privilege
It's easy to get in over your head. Make responsible decisions with your credit cards and loans
- Pay bills on time
All unpaid bills, including credit card, medical, cell phone, etc., will appear on your credit report and negatively impact your score
How to rebuild your credit score:
Review your credit report
Regularly review for unauthorized activity, errors and unpaid bills. You may request a free copy of your credit report annually at http://www.annualcreditreport.com.* Report issues immediately
Create a plan
Develop a time frame and budget for paying off current debts
Contact all creditors. If possible, set up payment plans
Use caution if creditors offer to "reduce" or "skip" payments. Although paying any amount, however small, is better than not paying at all, reduced payments may negatively impact your credit score
Pay off delinquent accounts first, then debts with higher interest rates; you may save money
Consider a debt consolidation loan or balance transfers to a lower rate credit card2
It may save you money and allow you to pay off debts sooner
Research working with a credit counseling agency
Shop around for the best services, fees and plans. Be sure an agency is legitimate before providing personal or financial information
Pay bills on time
After a while, it will positively impact your credit score and creditworthiness
Use caution when closing accounts
It may negatively impact your credit score by shortening your credit history or decreasing your available credit
Plan ahead for major purchases
High credit scores provide borrowers with lower interest rates and higher credit limits. It takes at least 6 months to improve your credit score, so plan ahead when you intend to purchase a home, vehicle or other big ticket item
How to maintain your good credit
Limit your accounts
Numerous store and/or credit card accounts may lower your credit score even if accounts are not used and balances are paid in full
Don't close old accounts
Lowering your available credit will lower your credit score
Use your accounts
Make purchases and pay the full balance each month
Maintain a low balance-to-limit ratio
Using less of your available credit will help raise your credit score
Pay bills on time
Lenders consider payment records to help determine your reliability
Maintain employment and/or primary residence for 2 or more years
Lenders use this information to help determine your stability
Review your credit report
Regularly review for unauthorized activity and errors. Report issues immediately
Questions about money management?
Our interactive guides can show you how to get smart with your money – in less than 10 minutes.
This article is based on information available in January 2018. It is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.
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1McFadden, Leslie. "How to pick a secured credit card." www.bankrate.com. N.p., 12 Oct 2011, n.d. Web. 7 Oct 2012.
2Fees may apply.
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