Building your credit

Barbara

Now that we've talked about the ways your credit is reported and scored, it's time to delve into what you can do about your credit situation.

First thing's first. If you haven't already done so, you need to assess your situation through your credit report and credit score. You may already be building credit and not realize it. If you're starting without much of a credit history, there are a couple things to focus on right away that can help to build your credit.

• Put money in the bank. Start with the basics by opening up checking and savings accounts. If you've already got them, fantastic. Just by having those two simple accounts you're seen as more financially stable.
• Pay on time, always, for everything. Whether it's paying the bill right when you get it, setting up automatic payments through a lender, or using online bill pay, find a system that works for you so you never make a late payment. This goes for your credit accounts, utility bills, rent, and whatever else requires a regular payment.
• Apply for credit. If you're going to school and took out a student loan, you're already on your way! If you didn't have to take out student loans or want to diversify your credit (something that plays into your score), you can also apply for a student credit card. Make sure that the credit you do establish will be reported to the credit bureaus (remember those are Equifax, Experian and TransUnion). Your account has to be reported in order for it to help you build your credit history.
• Choose a different type of credit. For some people, it may be difficult to secure traditional types of credit without an established credit history. Those folks can consider opening a retail credit card, which are generally easier to get. Just remember not to go crazy. Every new account you apply for will appear as an inquiry on your credit report and affect your credit score. Another option is a secured credit card, where you deposit money into a bank account to guarantee repayment for your credit card's limit.
• Use your credit. Yes, you should be using your credit card  to build your credit, but don't charge more than you can afford to pay off each month. That way, you still have the benefit of building credit, but don't have to worry about using too much of your credit limit (remember that's also a consideration in calculating your score).  There is one caveat you want to remember, though. The balance that's reported to the credit bureaus is the closing balance on your statement. So even if you pay your balance in full each month, you still may appear to have a high debt-to-credit limit ratio. If you're using your card to get rewards and racking up high balances, it's best to pay that down a bit before your statement is generated and the balance reported.

Have any of you been working to establish your credit? If so, share what steps you've taken.

If you're dealing with some negative credit issues, stay tuned. My next post will wrap up our series on credit with some thoughts on how to start repairing your credit.