How to Start Building Credit

Believe it or not, when you apply for credit, having no credit is almost as bad as having bad credit. And building good credit is like building your reputation…it takes time.

It’s important to get started early

Establishing a pattern of good, responsible use of your accounts is important. How long you have been in the credit bureau system is a big factor in determining how much credit you qualify for.

Here are some tips to get started:

1. Open a savings and checking account 
   Begin by successfully managing a checking account. Bank account numbers are often requested on credit applications.
2. Get a job
   Once you’re old enough, find after-school or summertime employment. Lenders will look at the length of time in occupation or current job when determining your loan worthiness.
3. Open a small loan or credit card 
   If you have earned income (an independent source of repayment), a credit card with a low limit is a good way to start. Don’t have a job yet? Then a small personal loan that is secured with a savings account may be a better option. Use your home address on credit applications and not your college address, which could change over the years. If you’re denied credit, you can request a free copy of your credit report to see if there is an error on it, and then have corrections made to it.
4. Use your loan or credit card occasionally for small, affordable purchases
   The best way to use it is for one purchase or event that you know you can pay off each month when the bill comes.
5. Pay off your balance each month
   Pay your balance in full and pay it on time. If you have to carry a balance, keep it at less than half of your credit limit as to not impact your credit score. Pay it down as quickly as you can.

Just as important as the steps for establishing good credit are the actions to avoid.

Here are a few:

• Don't overdraw your checking account
  You could be charged fees and you could damage a good reference.
• Don’t apply for multiple credit cards
  Applying for too much credit in a short period of time will negatively impact your credit score.
• Avoid store credit cards It’s tempting to get a card to get a discount on a purchase, but these cards often have higher than average interest rates
• Don't let friends borrow your credit or debit card
  And don’t let them have access in any way to your bank account. You alone are responsible for any authorized use of your accounts.

Making the right financial decisions over time will help your credit history and credit score.