How Best to Build Credit

Without credit, you will have a hard time renting an apartment, making a large purchase or borrowing money in an emergency. Even some potential employers will check your credit rating. To build a good credit score, you need to open and use credit cards and other credit products. You also need to manage those products responsibly.

Open Credit Accounts

You must have active accounts that report to the three major credit bureaus, Equifax, TransUnion and Experian, to build a credit history. Many financial companies offer traditional and secured credit cards. Traditional cards do not require payment up front, but can come with other fees and high interest. Secured credit cards require that you put money into an account before opening the credit card. Retail stores and gas stations also offer credit cards, but you must use them at the store. You can also take out a small personal loan or auto loan to help build credit.

Manage Credit Responsibly

Do not apply for several credit cards at once; doing so can lower your credit score. However, the credit bureaus consider applying for several loans during a short period of time as comparison shopping, and this should not lower your score. Once you open an account, pay the bill on time each month. A history of timely payments will quickly build a good credit score. Do not exceed your available credit limit on credit cards, as doing so will cost you a fee and hurt your credit rating.

Keep Debt Low

Try to pay off the entire balance on your credit card each month. If you cannot pay the entire balance, only carry a small amount of debt on the card. Never max out your credit cards. Using the entire available limit on your card will lower your credit score, and future lenders may see you as a high risk applicant. Carrying a large balance will also hurt you financially as the balance compounds more interest each month, making your purchases cost more in the long run.

Check Your Credit Report

Carrying and using credit cards puts you at risk for credit fraud. Thieves can access your credit card account number and make charges, or get ahold of your Social Security number and apply for new accounts. Creditors also make mistakes and occasionally report misinformation to the credit bureaus; the credit bureaus can also make mistakes themselves. You can counteract this by checking your credit report. Under law, each of the credit bureaus must give you a free report once a year. You can get copies of all three reports through the Annual Credit Report website.