How to Start Building Credit

Building a strong credit report has rewards that will last a lifetime. With good credit you will qualify for lower interest rates on car loans and mortgages. Employers also check your credit report prior to hire to see how well you manage your financial life. Building good credit takes some time, but following a few simple rules will make the task easier.

Instructions

1

Keep your credit utilization ratio as low as possible. The utilization ratio is the amount you owe on your credit cards divided by your available credit. This ratio should be under 30 percent for banks to consider you a good credit risk. This ratio also accounts for one-third of your credit score.

2

Pay all your bills on time and in full. Banks and lending agencies advise that this is the single biggest thing you can do to increase your credit score. Credit scores range between 300 and 850, with scores above 700 considered the threshold where banks are comfortable offering you the lowest interest rate.

3

Request your free credit report from the Annual Credit Report website (see Resources). Make sure your credit report is free of any errors. Calling the credit agencies is the best way to have errors removed. You may have to provide proof that the error is not about you.

4

If your credit report has late pays and charge-offs as a part of your record, ask the credit reporting agencies if they will remove them. Generally, these items remain on your report for seven years, but if you ask nicely, you may be able to get some of them removed.

5

Let your bank know what you are doing to build up your credit. If your banker knows you are serious about establishing a top-notch credit report, he will help you obtain lower rates on loans.