Help With Building Your Credit
Credit is an essential part of modern life. Your credit affects not only the interest rates you are offered when financing mortgages and cars, but may also affect your employment and ability to rent an apartment. To get the best financial terms, you must focus on building a consistent and positive credit history -- even if you've had trouble in the past.
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Pay on Time
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No matter whether it's an installment loan, such as a mortgage or auto loan, or revolving debt, such as credit cards, keep track of the due dates and pay on time every month. Thirty-five percent of your FICO credit score, which is the industry standard developed by the Fair Isaac Company, is determined by your payment history. It doesn't matter whether you make only minimum payments, pay your credit card balances in full, or pay somewhere in between -- being on time is what counts in this calculation.
Monitor Your Debt-to-Credit Utilization Ratio
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Your debt-to-credit utilization ratio is the amount of debt you carry compared to the amount of your available credit, and it makes up 30 percent of your FICO score. Using 30 percent of your available credit is considered good. According to personal finance expert Liz Pulliam Weston, using 10 percent is optimal for achieving a 740 or higher credit score, which is considered excellent. If possible, spread your credit use out over many cards, rather than carrying a single large balance. This reflects more positively on your credit history and score -- as long as you are making paying all those cards on time a priority.
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Check Your Credit Report
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The Fair Credit Reporting Act allows every U.S. citizen a free annual copy of her credit report through AnnualCreditReport.com (see Resources). As of February 2011, it is the only official site to offer this service. Check your credit report at least once a year, so you know that your creditors have been reporting accurately to Experian, Equifax and TransUnion -- the three national credit reporting companies. Dispute any inaccurate information with the credit reporting company in question in writing. Provide copies of applicable evidence, as well as a written factual explanation explaining your dispute. Unless a dispute is deemed frivolous by a company, it is required to investigate within 30 days of receiving your letter. Follow up to ensure erroneous information is resolved.
Other Considerations
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The length of your credit history makes up 15 percent of your FICO score. If you've never had credit before, you will need to establish a track record for yourself before you see your credit score start to rise. Simply being consistent and responsible with your credit goes a long way toward building a solid credit history and rating. If you've had some credit missteps along the way, you can rebuild your credit by following the same rules -- just realize that it will not happen overnight.
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