Building credit is a slow, steady process. It is difficult to open revolving accounts or get installment loans until you have some credit established. Then you can gradually add more types of accounts and demonstrate that you will pay responsibly. This will build up your credit reports with Experian, Equifax and TransUnion. It will also contribute to a high credit score, since that number is based on the credit bureau reports.
Step 1
Get your first credit card by being added as a joint account holder with a family member or opening a secured account. You will not be turned down for a joint account if you open it with a spouse, parent or other family member who has excellent credit, Liz Pulliam Weston of MSN Money explains, and you will benefit from their history. Acceptance for a secured card is guaranteed because you put up enough money to cover the credit limit. It is held in an account and can be seized by the bank if you fail to make your payments.
Step 2
Use your credit card regularly and make prompt payments every month. Pulliam Weston advises setting up an automatic payment to ensure you will never be late with payments, since one late payment can be a significant blemish on a new credit history. Your credit reports will list the account information, credit limit, balance and payments. It will also show whether they were made on time. Other lenders will be able to review this information when you apply for future accounts.
Step 3
Open another account once you've built up a year's worth of credit history on your credit report. Make it an installment loan, if possible, since Fair Isaac Corp. (FICO), which compiles your FICO score, says it is best to have different types of credit and credit cards are revolving accounts. An installment loan is a car loan, personal loan or another account with a fixed term and monthly payments. Always pay it on time and continue to use and pay your credit card statements promptly.
Step 4
Keep your first credit card account open, even if you get another account with better terms once your credit report is built up. If your first card was a secured account, the bank will most likely be willing to switch it to a regular account if you have handled it responsibly. Use your oldest card every few months so it will show account activity on your credit report. FICO says a lengthy history raises your credit score, while closing older accounts can lower it.
Member Comments