How to Build Credit History

Kathleen Esposito
People looking at clock

Don't Wait to Build Credit

One of the first things banks do when you apply to get a loan is check your credit history. If your history is good, you get a lower rate. If your history is bad, you may not get approved. If you have no history, the lender might not want to take a gamble on you, since it doesn't know what the risk will be. Start building your credit as early as possible.

Woman with credit card

Open Your First Credit Card

One of the larger factors in your credit score is how long you have had an open credit account. Only apply for one card at a time to improve your chances of being approved for that first card.

Woman with credit card

Secured Credit

Look into getting a secured card if you aren't able to obtain a traditional credit card. This can be a good start. A secured card uses your account balance as collateral, so most people with savings accounts are eligible. The lender knows that you can repay the balance since you have that money in the bank already.

Limit Your Accounts

Limit Your Accounts

Having more credit cards doesn't necessarily equal better credit history, especially if you open all of the accounts at the same time. Having too many accounts increases the temptation to spend, and may make creditors nervous about approving you for more credit.

Every time you apply for a new card, your credit report notes a credit inquiry in your file. Having too many inquiries can bring down your score.

Bills

Pay on Time

Once you have accounts established, manage them wisely. Always pay your bills on time.

If you pay a bill 30 or more days late, the creditor can forward your account to a collections agency. This can be quite detrimental to your credit. Even if you are less than 30 days late, it is likely you'll be charged a late fee.

Woman with bills

Keep Balances Low

Lenders like to see a high percentage of available credit. This means that the amount your charge on your card each month should not max out your card. Try to pay off your card's balance in full each month. If you are unable to do so, keep the balance at below 50% of the limit.

Pile of credit cards

Rebuilding History

If you have some credit blemishes and want to get your score back up, the first step is to talk to any creditors that have sent you to collections and negotiate payment plans. Many will amend your credit report if you follow the terms of such a plan.

Good credit report

Keeping Credit Strong

No accounts in collections? Try to consolidate your debt by combining multiple accounts into one lower-interest account. This will make it easier to pay on time, since you'll have one bill instead of many.

The better you manage your finances, the better your credit score will be. Consolidation can be a good option to get your finances in order.

Couple on computer

Give It Time

Once you have started your credit history, it may be tempting to close those low-limit cards in favor of higher-limit ones. Don't do it if your sole purpose is to keep your credit score high. Keep your oldest account open and use it sporadically. This will show lenders that you have a longstanding account. It helps them see that a lender has faith in you.

As your credit history builds, so will your credit score. This will be a great help when it comes time to finance a vehicle or a home.

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How to Build Credit History