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Building a good credit score

Every financial decision you make may impact your credit score and your ability to get a job, loan, credit cards, basic utilities, and services, even renting an apartment or leasing a car. Good financial choices help lenders and businesses see you as low-risk. You'll be more likely to receive financial opportunities, including higher credit limits and lower interest rates.

Credit scores change. If you've never had credit or made financial mistakes, wise decisions and responsible actions, over time, will lead to a positive credit report and financial benefits.

Are you wondering how to establish credit that will improve your credit score and report? Here are some tips:

Build credit history that benefits you:

  1. Start early
    The length of your credit history is a key factor in determining your credit score

  2. Start small
    Lenders assume you don't plan to live within your means when you apply for a lot of credit in a short period of time

  3. Open store charge card or credit cards to build credit
    Pay your balance in full each month or keep your balance low. If you don't qualify for a store charge card or credit card:

    1. Open a secured credit card. It may allow you to use your money to establish a credit history. (For example, you contribute $300 to the card; your credit limit is $300.) Before opening a secured credit card, confirm your payment history will be reported to the major credit reporting agencies and consider fees, interest rates and the consequences of default1
    2. Have someone cosign your account or installment loan
    3. Ask a family member or friend about becoming an authorized user on one of their accounts. Credit activity on the shared account may  be reported in the primary cardholder's name and may be reported in the authorized user's name. Check with the issuer to confirm whether they report authorized users to credit bureaus. Use caution. Poor decisions may affect both you and the primary account holder, and vice versa
    4. Don't abuse the privilege
      It's easy to get in over your head. Make responsible decisions with your credit cards and loans
    5. Pay bills on time
      All unpaid bills, including credit card, medical, cell phone, etc., will appear on your credit report and negatively impact your score

How to rebuild your credit score:

  1. Review your credit report
    Regularly review for unauthorized activity, errors and unpaid bills. You may request a free copy of your credit report annually at http://www.annualcreditreport.com.* Report issues immediately

  2. Create a plan
    Develop a time frame and create a budget for paying off current debts

  3. Contact all creditors. If possible, set up payment plans

  4. Pay off delinquent accounts first, then debts with higher interest rates; you may save money

  5. Consider a debt consolidation loan or balance transfers to a lower rate credit card2
    Managing your debt may allow you to pay off debts sooner

  6. Research working with a credit counseling agency
    Shop around for the best services, fees and plans. Be sure an agency is legitimate before providing personal or financial information

  7. Pay bills on time
    Considering signing up for bill pay  with your bank. Bill pay makes it easy to receive and pay your bills, schedule payments, and set up reminders. After a while, it will positively impact your credit score and creditworthiness

  8. Use caution when closing accounts
    It may negatively impact your credit score by shortening your credit history or decreasing your available credit

  9. Plan for major purchases
    High credit scores may provide borrowers with lower interest rates and higher credit limits. It takes time to improve your credit score, so plan ahead when you intend to purchase a home, vehicle or other big ticket item
     

How to maintain your good credit

  1. Limit your accounts
    Numerous store and/or credit card accounts may lower your credit score even if accounts are not used and balances are paid in full

  2. Don't close old accounts
    Lowering your available credit may lower your credit score

  3. Use your accounts
    Make purchases and pay the full balance each month

  4. Maintain a low balance-to-limit ratio
    Using less of your available credit may help raise your credit score

  1. Pay bills on time
    Lenders consider payment records to help determine your reliability

  2. Maintain employment and/or primary residence for 2 or more years
    Lenders use this information to help determine your stability

  3. Review your credit report
    Regularly review for unauthorized activity and errors. Report issues immediately

Questions about money management?

Our interactive guides can show you how to get smart with your money – in less than 10 minutes.

Credit scores & reports interactive guide

Get information on your credit score, how it’s calculated and how to protect it

Find out more*

This article is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.

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