How to Build Your Credit for Free

If you have ever had a bank account, credit card or loan, you also have a credit report. Credit reports are issued by three major credit bureaus and help lenders, insurers, utilities and employers determine your eligibility for their services. The scores are based on a number of factors which are weighted differently in each bureau's scoring methodology. Building your credit doesn't have to cost you anything, provided you pay off your balances on time.

Instructions

Instructions

1

Open checking and savings accounts. If you don't have bank accounts, open them. Bank accounts show potential lenders a sense of stability and financial responsibility. Bank accounts are also one of the only ways a minor can start building credit.

2

Pay your bills on time. One missed or late payment can stay on your credit report for up to seven years, so take whatever precautions are necessary so that you are never delinquent. Many banks offer free on-line bill pay which can be set up to send payments automatically to each of your payees by each payment's due date. If you have the financial stability to do so and an account at a bank that offers this service, set up bill pay to ensure your payments are always sent on time.

3

Pay off balances in full each month. While having a credit card is an important factor in building credit, you don't have to carry a balance for it to count toward your credit score. Paying off your cards each month will help you stay ahead of the common credit pitfalls and help you avoid paying interest. If you must carry a balance due to financial strain, carry no more than 30 percent of your total available credit in balances each month, although less is better.

4

Sign up for one or two store credit cards as they are easy ways to help you build credit. Store cards have more relaxed lending standards than major credit cards and can help you improve your credit by making smart purchases and timely payments every month.

5

Request a copy of your credit report. You are entitled to one free credit report each year from each of the three credit bureaus. Space these out and order one every four months each year. Review these reports carefully for any mistakes. You can dispute mistakes with each bureau and have them removed from your record. One mistake could cost you plenty of money in the form of higher interest rates on loans and credit cards, so carefully review your three credit reports.