How to Build Credit: The DIY Way

Poor credit can wreak havoc on your life in terms of getting jobs, the rates you’ll pay on loans, or qualifying for credit in the first place. We’ve heard and seen the dangers of credit repair services. There are no “quick fixes,” but with a bit of time, guidance and record-keeping, you can take matters into your own hands and begin building credit. We want to teach you how to build credit on your own in a smart and safe way.

To get started, access copies of your credit reports. Each of the nationwide consumer reporting companies—Equifax, Experian, and TransUnion—is required to provide you with a free copy of your credit report once every 12 months. The three companies share a central website and a toll-free telephone number to order the free annual credit reports the government entitles them to. To order, visit, or call 1.877.322.8228.

Once you have the reports in hand, read over them. Since credit scores are based on a wide range of data mined from these credit reports, in general, strengthening your credit history will also improve your credit scores. Building credit starts with an understanding of these reports.

How your credit report is organized

Credit reports portray an image of you by reporting your financial credit and personal contact information. A lot more than actual credit card information is included—how much total debt you have incurred, the number of credit inquiries that have been made on your credit history, and how long it takes you to repay your debts are also included on a credit report. If you have had any liens or bankruptcies in your credit history, these, too, will also appear on the report.

What makes up a credit score?

FICO, the largest and most respected score provider, shares an overview of how their score is calculated:

This information is then compared with similar information from other consumers to determine your credit score. The number can range anywhere from 300 to 850—the higher the number, the better your score. More details on these five categories from FICO.

Building credit and improving your score

The task is straightforward and comes down to the basics:

  • Pay your bills on time—month after month, year after year.
  • Get current and stay current.
  • Keep balances low on credit cards and other “revolving credit.” What is your overall debt-to-credit ratio?  Add up and divide the total current balances on each of your cards by your total credit-card limit.  You’re in good shape if you use less than 30% of your available credit.
  • Pay down outstanding debt rather than moving the balance around between cards.
  • Don’t close unused credit cards. Longer credit histories are generally better. Also, having a greater percentage of unused credit can also be helpful.
  • Don’t shop for or open new cards or loans that you don’t absolutely need.  Applying for credit creates an “inquiry” notation on your report. Too many inquiries will lower your score.
  • Refute erroneous negative information. Keep your information current.

[Note, their are some dangerous debt management options that can seriously damage your credit score. Read about two types and how to avoid their pitfalls: debt settlement and bill consolidation.]

How to build credit after a period of financial distress

  • Open new accounts and make payments on time. This is a key step in building credit back to a good level. You may choose to open basic accounts like retail store credit cards or gas cards, but be sure to pay on time.
  • Maintain low balances on your cards. Try not to carry a balance of more than 30% of your credit limit. The lower, the better.
  • Make payments that are higher than the minimum required. By doing so, you will demonstrate responsibility and good credit habits.
  • Ask for help. If you are not able to open a new account on your own, you may ask a family member or friend to co-sign for you.

If you want to learn more about how to build credit or how to pay off debt, you can meet with a Clearpoint consumer credit counselor. Call 800.750.2227 (CCCS) to schedule an appointment for a free debt and credit counseling session or get started online.

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