Why Build Credit?

Everything is determined by your credit score. Taking out loans (including student loans), getting credit cards, leasing apartments and cars, even some employment opportunities all take your credit score into account. Because of this it is important to start building good credit early on to avoid difficulties later. Also, keep in mind it takes a long time to rebuild bad credit.

What Makes Up Your Credit Score?

Your credit score is called a FICO score and is determined by information in your credit report (a record of your financial actions). You have three FICO scores and each score corresponds to one of three credit bureaus (Equifax, Experian, and TransUnion). Each of the three bureaus calculates your FICO score about the same.

Here is a list of the information used in calculating your FICO score:

Payment History

  • Payment information on: credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.
  • Bad public records (bankruptcy, judgments, suits, liens, wage attachments, etc.) and age of record
  • Past due items (delinquency): how long it’s been past due, the amount past due, number of past due items, how recent past due item is, the number of past due items on file
  • Number of accounts paid as agreed

Amounts Owed

  • Details include how many open and owed accounts you have, the total outstanding balances and additional payment information associated with each account

Length of Credit History

  • How long has your credit been established for. Individuals, such as your parents, have a longer history which often contributes to more reputable credit

New Credit

  • The number of recently opened accounts and credit inquiries

Type of Credit

  • Recent cards, retail accounts, installment loans, and mortgage

How to Build Good Credit

The key to having good credit is having credit cards. Credit cards show that you are capable of making regular payments and know how to manage your accounts. However, it is important to remember only to open new credit accounts as you need them. Having many accounts will not raise your score and are not easily erased from your report. Also note, opening too many new accounts at one time will change the average age of your report. Younger credit reports have lower credit scores given they do not have a long history of stability to back them up. Keep outstanding balances low as high debt can lower your score. Most importantly pay your bills on time and if possible in full.

To view your own detailed credit report and find out your credit score, check out Fico Scores/Reports.

Additional Resources

Using a credit card responsibly can help your credit score.  Are you trying to find information regarding credit card services?  The web is a great resource for learning about credit card processing as well as merchant services.