How To Build Credit

November 25, 2017

 

     There are several ways to build credit for people who have not yet established a credit score. First things first, after you obtain your report it is essential to read over your entire credit report for accuracy. For instance, do you see any late payments, derogatory remarks, or collections accounts that you were unaware of?

 

     According to the Fair Credit Reporting Act (FCRA) you have the right to challenge any item you believe to be reported incorrectly.

 

     After you have challenged the items on your credit report it’s now time to ensure you have a good mix of accounts open. The two most common type of accounts are revolving and installment.

 

      Revolving accounts don’t have an expiration date or specified time when the account will close, for example a credit card in a revolving account.

 

      Installment accounts have a maturity date or period of time in which the account will expire, for example a 5-year car loan.

 

      If you fall anywhere between 11-20 revolving and installment accounts you are deemed a good credit candidate because it displays your ability to handle multiple debt obligations. However, if you are just getting started please don’t be alarmed. If you have any close relatives who have had credit for any length of time you can become an authorized user on their account which will allow you to benefit from their positive credit history.

 

     Another great way to establish or build credit is a secured credit card. Secured credit cards require a deposit ranging from $200- $1,000. For this “down payment” you now a credit line of your initial payment. For example, if you put $250 as a down payment the credit card company will issue you a credit card for $250. Other than this initial payment, the secured credit card acts the same as any other credit card.

 

     There are also secured cards that have the ability to convert into an unsecured credit card. In that case the credit card company will refund you the initial payment you made to open the account.

 

     Using these three methods you will be on your way to establishing a strong credit score and taking your first step towards financial freedom.

 

 

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