How to Build Credit History in the USA

Primarily used in the past for lending, your credit history is now utilized by employers evaluating job candidates, landlords looking to lease apartments, and even insurance companies deciding whether to extend auto or health insurance. Creditors use your history of financial responsibility, i.e., your credit score and credit report, in determining whether to lend you money. Establishing good credit is a matter of learning what to do before you get started, then maintaining good money habits. "It's much easier to start with good habits than to repair black marks later on", says Liz Pulliam Weston of MSN.com's Money.

Instructions

1

Begin by checking your credit report. Even if you've never before applied for credit, there may be a credit file on you. According to the Federal Trade Commission, even applying for auto insurance creates a credit file in your name. You unknowingly may be a victim of identity theft or there could simply be someone else's information erroneously placed on your report.

Your credit report will provide you with your credit, or FICO, score, the names of all creditors who report to the credit bureaus, current account balances and payment history, your available credit and any negative data, like late payments, lawsuits, judgments and bankruptcies. Contact the three main credit bureaus---Experian, Experian, Transunion, and Equifax---to get your report. If you find mistakes, you should address them before you seek to establish any new credit.

2

Open a checking and a savings account. If you are under 18, you may need to open a joint account with an adult, but first, search around. There may be a bank willing to open accounts solely for you. Try smaller, local or regional banks as well as credit unions in addition to larger, well-known banks. Examine and compare account requirements and fees to get the best deal for you.

3

Create a budget for yourself. Are you seeking credit for a specific reason, or to simply begin your credit history? Know how much you can afford to pay each month in total before agreeing to any installment debt or creating any credit card balances.

4




Cell phone payments can add to your credit history

Start with service payments. These might be for cell phones, utilities, cable or Internet. Many of these providers of these types of services report to credit reporting agencies. Be sure to pay on time every month to establish a good history of payment.

5

Apply for a major credit card. Consider starting with a single secured credit card. For a small amount, usually up to $500 that potentially remains on deposit for the life of the card, you can establish good credit by using less than the full amount of your credit limit, usually the amount on deposit, and paying your card balance off in full each month. The risk for the creditor is low because your deposit guarantees payment. These cards tend to have lower credit limits, higher fees and higher interest rates, but once you've established good credit, you can approach your creditor about lowering your fees and interest, increasing your credit limit---with or without additional deposits---and/or converting your card to an unsecured one. Make sure that you get a card from a lender who is reporting to the credit bureaus or it won't help you in establishing your credit history.

If you seek an unsecured card, get one with a low annual fee and low interest, if possible. Analyze credit card terms very carefully before deciding which card to go with. Online sites will help you compare credit cards. Bankrate.com, Creditcards.com, CardTrak.com, Lowcards.com are just a few sites that will help you identify and evaluate secured credit card options.

Credit card issuers are particularly willing to give new credit cards to college students, according to Erin Burt of Kiplinger.com. But remember that the credit extended is not free money. Failing to pay the bills in a timely manner can have long-term repercussions. Ideally, charge only what you know for certain you can pay when the bill is due. The best credit score comes from keeping your balance at or below 30 percent of your available limit, and paying that off as soon as it becomes due.

6

Use retail credit if unable to obtain a major credit card. Retail credit includes store or gas credit cards, which are sometimes easier to get than a major credit card, especially if you are in the process of making a retail purchase. They count less toward your overall credit score, but they can still demonstrate a pattern of responsible credit handling through good use of available credit and timely payment that may entice a bank to issue an unsecured card.

7

Add an installment loan. Installment debt might include personal loans, store-financed purchases, like new furniture, or student loans. Your payments work toward paying your balance down to zero, upon which your account typically is closed. Good credit comes from a mix of revolving (credit cards or open lines of credit) and installment accounts.

8




A co-signer helps but comes with risk

Piggyback on someone else's credit when you are unable to obtain any credit in your own name. Have a person with established credit add you as a joint owner to a credit account or get a loan with a co-signer. Keep in mind, however, this approach comes with higher risk. Just as you share in the credit, you also share the credit history. Being an authorized user of an account is not enough; you must be a co-owner of the credit. If you are added to an account, that person's credit history, good or bad, can be imported into your credit report. If you get a co-signer and you do not pay as expected, the black marks on your credit will be shared by you and the co-signer.