How to Build My Credit Score

The most important part of starting off your financial life on the right foot is to build your credit score so that you can get approved for loans, credit cards, or other types of financing in the future when you need them.

Here are some tips on how to build your credit score in three easy steps.

1) Open a Card

The simplest and most direct way to build your credit score is by applying for a new credit card. Even if you don’t get approved for one—which happens much more often than you might think—you’ll still get your credit score dinged. That ding may not seem like much, but it will start to make a difference over time: small dings now add up over months and years, eventually resulting in higher credit scores.
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Even better, paying off that new card each month and paying bills on time will move you toward high-scoring territory fast—and show future lenders that you’re someone who can be trusted with more high-limit accounts in future.

2) Pay Off Your Balance

On one end of spectrum is paying your balance in full each month. You don’t need a large credit limit, as long as you can afford it. Paying off your balance will help build your credit score—but it will also mean that you’re never carrying a balance and paying interest on that money. That approach might be easier said than done, though, especially if you tend to overspend or find yourself scrambling at the end of each month just to pay off bills and fees. Making sure you have an emergency fund set aside so that you always have some cash available for unplanned expenses could make it easier for you to keep up with payments on time each month.

If carrying a balance isn’t realistic for you, look into other options for building your credit score—for example, getting a secured card or taking out a personal loan from a bank might give you access to extra funds without risking too much debt. Either way, what matters most when trying to build (or rebuild) your credit history is showing lenders that you know how to use credit responsibly.

3) Pay on Time Every Month

Missing payments can have disastrous consequences for your credit score, even if you’re not late with rent or a car payment. If you aren’t able to pay your bill on time because of an unforeseen circumstance, call your lender before it’s too late. Delinquent accounts often don’t count against you immediately—it could take as many as three months for negative information to show up on your report—so it’s better to clear things up right away. If that doesn’t work, submit a dispute and ask that they remove any erroneous information related to late payments on account of extenuating circumstances (the Fair Credit Reporting Act allows financial companies to exclude those types of events).

4) Don't Close Cards

It’s tempting to think that closing credit cards will help you improve your credit score, but in reality it can have a damaging effect. According to Experian, one of three major U.S. credit bureaus, accounts that are inactive—i.e., with no balance and not being used—are reported as positive information on your report if they are less than two years old; after two years of dormancy, however, they will be reported as closed accounts with zero balances. Keeping your older accounts open could result in better scores down the road. If you absolutely must close an account or card, try transferring your balance to another account before doing so.

Having a low-interest loan through a bank rather than through a store or company may also help boost your rating—credit score models are likely to view installment loans more favorably than revolving debts such as charge cards because installment payments tend to be made on time. Finally, make sure all of your other reporting agencies (not just Equifax) show accurate reports about how well you pay back debt. Your payment history comprises 35 percent of your total FICO® score calculation, so don’t ignore other scoring agencies and wait until there’s something important at stake before checking up on them! The website AnnualCreditReport offers free access to each bureau’s free report once per year.

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