How to Build a Good Credit History

Your future depends on your credit history...

Methods to build your credit:

1. Open a checking or savings account. While a bank account will not directly affect your credit score, the account activity will demonstrate your ability to handle money responsibly. Be aware that writing bad checks and overdrawing your bank account are negative indicators to lenders and do damage to your credibility.

2. Apply for a credit card and use it responsibly. Pay your bill in full each month to show that you're capable of handling money. If you must carry a balance, it's imperative that you pay your bills on time and try not to exceed 30% of your available credit limit. Department store and gasoline credit cards are generally easier to obtain than major credit cards such as a MasterCard®, Visa®, or Discover®. But there are better options designed specifically for people with little or no credit history here >>>

3. Apply for a small loan or line of credit from your local bank. Repay the loan promptly and on time to build a positive credit history and earn a good credit rating. To get a loan without a co-signer, you must be at least 18 years old and have a steady source of income. Increase your chances of getting the loan you're applying for by coming up with a large down payment.

4. If you don't qualify for credit on the basis of your own credit file, consider asking someone with an established credit history (like a parent) to co-sign your application. But be aware-- if you fail to repay, the co-signer promises to do so on your behalf.

Qualifying for a new credit card:

If you are at least 18 years old and have a regular source of income or savings, you're on your way to qualifying for a credit card! But you'll still have to show that you can handle this privilege. The proof is in your credit. If you've financed a car loan or other purchase, you probably have a record at a credit bureau. This credit history shows how responsible you've been in paying your bills and helps the credit card issuer decide how much credit to extend.

If you're a full-time student, make sure to include this information on your credit card application. Creditors often assign full-time students lower initial credit lines to help build their credit histories. There are also many student credit cards designed specifically for college students.

If you're not a student and don't have any credit, there are many credit cards designed to assist you as well. These credit cards tend to have higher APR's and additional fees as compared to standard cards, but they'll give you the opportunity to prove your credit worthiness and build your credit history.

If your application is denied:

If you've been denied credit for any reason, you should receive a written explanation from the financial institution describing the reasons for your denial. If you were denied because of information supplied by a credit bureau, federal law requires the creditor give you the name of the credit bureau that supplied the information. You have 60 days to contact the credit bureau if you would like a free copy of your credit report. If you find an error in your credit report, you are entitled to have it investigated by the credit bureau and corrected at no charge.

However, if negative information on your credit file is accurate, only time and responsible credit habits can restore your credit history. It's important to note that financial institutions must make credit equally available to all creditworthy applicants. Under the Equal Credit Opportunity Act, you have certain rights that protect you against unfair credit discrimination.

Under this Act, you cannot be denied credit because of your:

• Age (unless you are under 18)
• Sex
• Marital status
• Race
• Religion
• National origin
• Income derived from public assistance
• Intent to have children
• Birth control practices

You can only be turned down for credit based on:

• Your credit history
• A current or former spouse's credit history
• Other financial information

If you suspect discrimination by a bank, savings and loan or credit union, ask for the name and address of the federal agency that enforces the Equal Credit Opportunity Act (depending on the institution, this will be either the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision or the National Credit Union Administration). The Act mandates that the creditor must give you this information. Not every institution can act on your individual case, but they can track your complaints, along with other similar ones, in order to find a pattern of discrimination.

If you suspect discrimination by a retail store, finance or mortgage company, utility, state credit union or government lending program, contact:

Consumer Response Center
Federal Trade Commission
Washington, DC 20580

The Federal Trade Commission (FTC) cannot intervene in individual disputes. However, the information you provide can show patterns of discrimination in which the FTC can act.

You can also direct complaints against all types of creditors to:

Department of Justice
Civil Rights Division
Washington, DC 20530

 

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