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Building a Good Credit Score

Every financial decision you make may impact your credit score and your ability to get a job, loan, credit cards, basic utilities and services, even rent an apartment or lease a car. Good financial choices help lenders and businesses see you as low-risk. You'll be more likely to receive financial opportunities, including higher credit limits and lower interest rates.

Credit scores change. If you've never had credit or you've made financial mistakes, wise decisions and responsible actions, over time, will lead to a positive credit report and financial benefits.

Are you wondering how to establish credit that will improve your credit report? You've come to the right place.

Financial Education

How to build credit history that benefits you

  • Start early. The length of your credit history is a key factor in determining your credit score.
  • Start small. Lenders assume you don't plan to live within your means when you apply for a lot of credit in a short period of time.
  • Open store charge card or credit cards to build credit. Pay your balance in full each month or keep your balance low.

    If you don't qualify for a store charge card or credit card:

    • Open a secured credit card. It may allow you to use your money to establish a credit history. (For example, you contribute $300 to the card; your credit limit is $300.) Before opening a secured credit card, confirm your payment history will be reported to the major credit reporting agencies and consider fees, interest rates and the consequences of default.1
    • Have someone cosign your account or installment loan.
    • Ask a family member or friend about becoming an authorized user on one of their accounts. Credit activity on the shared account will be reported in the primary cardholder's name and may be reported in the authorized user's name. Use caution, poor decisions may affect both you and the primary account holder, and vice versa.
  • Don't abuse the privilege. It's easy to get in over your head. Make responsible decisions with your credit cards and loans.
  • Pay bills on time. All unpaid bills, including credit card, medical, cell phone, etc. will appear on your credit report and negatively impact your score.

How to rebuild your credit score

  • Review your credit report.2 Regularly review for unauthorized activity, errors and unpaid bills. Report issues immediately.
  • Create a plan. Develop a timeframe and budget for paying off current debts.
    • Contact all creditors. If possible, set up payment plans.
    • Use caution if creditors offer to "reduce" or "skip" payments. Although paying any amount, however small, is better than not paying at all, reduced payments may negatively impact your credit score.
    • Pay off delinquent accounts first, then debts with higher interest rates; you may save money
  • Consider a debt consolidation loan or balance transfers to a lower rate credit card.3 It may save you money and allow you to pay off debts sooner.
  • Research working with a credit counseling agency. Shop around for the best services, fees and plans. Be sure an agency is legitimate before providing personal or financial information.
  • Pay bills on time. After a while, it will positively impact your credit score and creditworthiness.
  • Use caution when closing accounts. It may negatively impact your credit score by shortening your credit history or decreasing your available credit.3
  • Plan ahead for major purchases. High credit scores provide borrowers with lower interest rates and higher credit limits. It takes at least 6 months to improve your credit score, so plan ahead when you intend to purchase a home, vehicle or other big ticket item.

 

How to maintain your good credit

  • Limit your accounts. Numerous store and/or credit card accounts may lower your credit score even if accounts are not used and balances are paid in full.
  • Don't close old accounts. Lowering your available credit will lower your credit score.
  • Use your accounts. Make purchases and pay the full balance each month.
  • Maintain a low balance-to-limit ratio. Using less of your available credit will help raise your credit score.
  • Pay bills on time. Lenders consider payment records to help determine your reliability.
  • Maintain employment and/or primary residence for 2 or more years. Lenders use this information to help determine your stability.
  • Review your credit report. Regularly review for unauthorized activity and errors. Report issues immediately.

Recent Articles:

1McFadden, Leslie. "How to pick a secured credit card." www.bankrate.com. N.p., 12 Oct 2011. N.d. Web. 7 Oct 2012.

2You may request a free copy of your credit report anually at www.annualcreditreport.com.

3Fees may apply.

"Understanding Your Personal Credit Report and Score." www.tdbank.com. N.p. unknown. N.d. 7 Oct 2012.

"Understanding Credit Scores." www.experian.com. N.p. unknown. N.d. 7 Oct 2012.

"How to repair my credit and improve my FICO credit score." www.myfico.com. N.p. unknown. N.d. 7 Oct 2012.

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This article is based on information available in August 2012. It is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.