Credit Part 4 of 4: Building Credit


Get some credit: This can be a catch-22. You need credit to build good credit history, but no one will give you credit unless you have good credit to begin with. Start by applying for a credit card with the financial institution with which you already have a checking or savings account. They are more likely to extend you credit because you are a current customer. You can also try applying for a retail card, which is typically easier to get than a traditional credit card. But beware: retail cards tend to have higher interest rates associated with them. As a last resort, you can apply for a secured credit card, which also has a high interest rate and requires some collateral, like a check deposited into a savings account with the creditor.

Use your credit wisely: Once you have a credit card, start using it. This doesn’t mean going on a shopping spree, but it does mean making small charges on your card that you can afford to pay back each month. Your credit history will build as you begin to pay down your balances in full each month.

Pay your credit card bill: Timely payment history is hands down the most important step to building credit. A late or missing payment might not devastate your score all that much, but making a habit out of delinquencies is sure to throw your credit off course. A 30-day delinquency can turn into a 60-day, and eventually your credit card company could charge-off your account. Unpaid debts go to a collection agency, which will hurt your credit further. So make it your top priority to pay at least the minimum due on your credit cards each month