Your credit history will affect your efforts to get a loan, to take a mortgage, the rate you pay for auto insurance and even your ability to get a job. It takes time, planning and discipline to establish credit. Good credit doesn't happen overnight, but you can make it happen. Follow this simple routine to get you on the right path.
Request your credit report from each of the three credit bureau reports. The Free Credit Reporting Act (FCRA) requires the 3 nationwide credit bureaus to provide you with a free copy of your credit report at your request once every 12 months. You may also want to subscribe to a service that monitors your credit reports and gives you unlimited access to the information.
Review the three credit reports for errors or discrepancies that may adversely affect your credit. Report any problems to the credit bureau and contact the creditor that has issued the disputed information. Contact creditors to resolve delinquencies.
Create a workable budget and stick to it. Include a regular amount for savings. Fiscal responsibility is the first step to establish good credit. A budget allows you to show that you can manage loan payments or additional financial obligations.
Visit your bank and set up a credit card with a secured line of credit. Use the card once or twice each billing cycle for small purchases that you would have otherwise paid for in cash. Submit payment in full for those purchases as soon as you receive a statement. The card will be reported to your credit as current, paid on time, and having 100 percent "open to buy," all of which are key factors to establishing credit.
Ask a parent or trusted family member with a solid credit history to add you as an authorized user on a credit card or revolving charge account. You do not need to use the card or even have it in your possession. Your credit report will reflect the same positive reporting as primary cardholder's.
Ask a family member or close friend to co-sign on a small loan for you. Be willing to demonstrate how you can afford the payments and how you appreciate the need to repay the loan as agreed. The loan payment history will report to your credit as well the co-signer.
Get information about various lenders' standards and requirements for issuing credit. Ask your banker for advice about how you can improve your ability to secure a loan.
Tips & Warnings
- Points are subtracted from your credit score each time you apply for credit. Hold off submitting loan applications until you are confident your request will be approved.
- Beware of "pre-approved" and "pre-selected" credit card offers. Either term simply means that you were mailed the application. These offers will not help you establish credit. You want to build credit, not debt.