Building a Credit History

A lot of people just starting out with credit don’t have a clue how to build a solid credit history. People rebuilding a bad credit history are slightly better off, knowing more about what not to do. Start here to learn how you can build a good credit history.

Get some credit

You can’t build credit without some type of credit account. In fact, the FICO scoring system can’t give you a credit score unless your credit report includes at least one account that’s six months and has been used within the past six months. If you don’t already have a credit card try getting one from the bank where you have your savings or checking account. Retail credit cards, though they have higher interest rates, are often easier to be approved for, especially if you’re new to credit or trying to rebuild credit. A final option is to get a secured credit card which requires you to make a deposit against the credit limit.

Make small, affordable charges

Once you have a credit card, start using it. If you just leave your credit card in your wallet, the issuer might close it because of inactivity. When you use your credit card, avoid maxing it out because that can actually hurt your credit score. Instead, make small charges that you can afford to pay in full by the time your billing statement comes.

Pay your bills on time

Payment history is the most important part of building a positive credit history. Late payments damage your credit score and make it harder to get credit cards and loans in the future. Make sure you keep up with your payment amount and due date so your payments are received on time. In fact, it’s a good idea to send your payment a few days in advance of the due date to be sure your credit card issuer gets it on time.

Keep new applications to a minimum

When you’re building or rebuilding credit, it’s best to limit your applications for new credit. Each new application for credit puts a small ding to your credit score and makes new lenders think twice about giving you credit. That’s because too many credit applications can make you look desperate or irresponsible or both.

You can gauge your credit progress by checking your credit report at least once a year for free at www.annualcreditreport.com.