How to Build a Good Credit History

Get Educated

A credit score is a three-digit number, between 300 and 850, derived from an analysis of your credit report. Lower scores denote higher risk, resulting in either a decline from creditors or much less favorable terms. Conversely, a higher score results in access to credit at the lowest rates and the best possible terms.

You have three credit scores, one from each of the three major credit bureaus: TransUnion, Experian and Equifax. The exact formula used to compute your score is not disclosed, but the five factors that determine your score are payment history, usually about 35 percent of your score; amounts owed, about 30 percent; length of credit history, about 15 percent; new credit, 10 percent; and types of credit used, 10 percent.

Keep an Eye on Your Credit Scores and Credit Report

Checking your own credit score and pulling your own credit reports give you an opportunity to fix any inaccuracies that may end up on your credit reports, and ensure that all positive information is included on your reports. It’s estimated that nearly 80 percent of credit reports contain inaccurate -- and often damaging -- information.

FabuLESS tip: Don’t apply for any credit cards or financing unless and until you’ve checked your scores and reports yourself first. Pulling your own credit does not affect your credit at all, whereas having a creditor pull your credit report, even if you’re approved, can and will drop your credit score.

There is no free way to receive your actual credit score; the "free credit score" places you hear advertised on TV only provide estimates, also called "educational scores."

You can check all three scores for $40 through the Experian website. (Link below)

It's normal for your scores to differ from one bureau to the next. This happens because they may have different information from one another, and each uses proprietary scoring models.

You can check your educational scores for free Credit Sesame and Credit Karma. (Links below)

Again, these are only estimates, not real scores, but they're still worthwhile to check, as these sites also provide free advice that can help you improve your score.

You can get a free copy of your credit report from each of the three credit bureaus once every 12 months or after you've been declined credit. Credit reports contain all of the information that's used to compute your score, but do not contain, your actual score.

Get a copy from each credit bureau at annualcreditreport.com. (Link below)

If Necessary, Do Some Housekeeping on Your Credit Report

Review all of the sections on each of your three credit reports. Should there be any inaccuracies, contact the credit bureau to dispute the information. The credit bureau has to respond within 30 to 45 days. If it agrees that the information is inaccurate or should it fail to respond, the information will be removed for the report. You can also add a short -- 100 words or less -- statement to your credit report to explain any issues that may have negatively contributed to your credit history.

'Borrow' Credit From Others

One quick way to boost your score and build your credit history is to ask an older, more creditworthy friend or family member to add you as an authorized user on his oldest credit card. Please note, he does not have to give you access to the actual card -- he just needs to add you as an authorized user to the account. Doing so can accomplish two things: It can both lend his long history of on-time payments to you and it can increase the average age of your accounts.