Building good credit doesn't happen overnight. It takes time, patience and strict attention to detail in a way that demonstrates you can manage credit responsibly. Building credit can be a challenging task, but doing it will teach you lessons you will remember for the rest of your life. Read on for more information about building credit.
Significance
For those who haven't established a credit history, it's important to build a credit history of some sort. This is important because credit plays a key role in life, from employment decisions to leasing or purchasing a home or apartment to purchasing items, large and small. Most people do this through credit cards, loans and or installment accounts with various retailers.
Free Annual Report
Federal regulations allow you to request a free "credit file disclosure" (credit report), once every 12 months. To do that, the three consumer-reporting companies--Experian, Equifax and Trans Union--support the Web site "Annual Free Credit Report," where you can see and print your free annual credit report (see Resources).
Starting
Review your credit report. Don't assume you don't have one, look anyway. The two most important factors affecting your credit score are that you have always paid your bills on time and have never used more than 30 percent of your available credit. The first, and most common step, to building credit is to open a checking and/or savings account at a financial institution. You then funnel money through these accounts to pay bills.
Controlled Borrowing
Before you do anything else, go to BankRate.com, a credit card indexing site (see References), find a card that has no annual fee and a low interest rate and apply for it. If you don't qualify for an "unsecured" card, apply for a "pre-paid" card, one the issuing bank will report to the credit bureaus (not all banks do). Search BankRate.com to find a card with no application fee and a low annual fee that will "convert" to an unsecured status (regular bankcard) after you have accumulated 12 to 18 months of on-time payments.
Next, open revolving charge accounts with gas companies and one or two retail stores you frequent regularly. Use your revolving accounts when you shop or fill up your car. Pay the entire balance monthly. When you have used credit cards responsibly for a year, try getting an installment loan from a bank. Keep the loan's length to a year or two to limit the amount of interest you pay. If you can't get an unsecured loan yet, try finding a co-signer with good credit. The loan will appear on both of your credit reports. If you pay it back responsibly, having done so will raise your scores. If you fail to pay the loan, or miss payments, your co-signer will have to pay the debt, so tread carefully with this option.
Considerations
Once you have built your credit, credit card offers will fill your mailbox. Only accept the cards that take provide you with long-term benefits. Always take advantage of your right to a free annual credit report and take immediate action when you spot a mistake.
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