What Can I Do to Build My Credit?

Your credit score is based on the report of your account history that the credit bureaus have on file. Building a good credit history not only increases your credit score, but also increases your chance of approval for loans and credit cards and helps you secure lower interest rates. Having good credit can also help you get a job, rent a house and pay less on car insurance.

Pay on Time

Over one-third of your credit score is based on your payment history on all of your credit accounts. Build your credit by paying all of your bills by their due dates. If you have trouble remembering to pay bills, set up automatic payments or payment reminders on your accounts. If you are late on payments because you cannot afford them, stop borrowing, get another part-time job if you can and contact your creditors to explain the situation and ask for lower payments or an extension on the due date.

Use Multiple Credit Types

Somebody with a good payment history on multiple accounts will generally have a better credit score than somebody who only has one account on his credit report. To build your credit, you should have at least one major credit card and at least one installment loan. Installment loans have equal monthly payments for a set amount of time, and auto loans, mortgages and student loans all fall into this category. Although opening a new account will hurt your score in the short term, paying back your debt consistently helps build your credit. In addition, having accounts for a longer time also builds credit.

Pay Down Balances

Nearly one-third of your credit score is based on the amounts you owe on your accounts. This includes not only the dollar amount, but also the ratio of the amount currently owed to the amount you originally borrowed or the amount you are authorized to borrow on your credit line. To boost your credit score, make consistent progress paying down your balances on installment loans. In addition, keep each credit card balance each month under 30 percent of the card's limit. Ideally, MSN Money recommends keeping the balance under 10 percent of the limit.

Maintain Accurate Reports

Even if you have been managing credit perfectly, if your credit report contains a significant error, you could end up with a poor credit score. For this reason, check your credit reports about once per year and ensure they accurately reflect the truth about your credit history. If you find any errors on your credit reports, write a dispute letter to the credit bureau to identify the error and ask that it be corrected.