Building Credit

Tips for building great credit

Whether you're just starting to build or are working to improve your credit history, here are some basic things to consider.

Open checking and savings accounts

Having these accounts is the first step to establishing yourself as a financial consumer. Checking accounts show lenders you're actively managing your money; savings accounts indicate you're putting aside something for your future.

Opening accounts is something you can do even if you're too young to establish credit in your own name. Until you're 18, any credit you get will likely have to be through an adult – either someone who co-signs a loan with you, adds you to their credit cards or opens a joint account with you. Starting an account history even before you turn 18 gets you on the right path and gives you practice in managing your money. 

Get your credit report – if you have one

Next, you need to find out how lenders view you. Most base their decisions on credit reports, which are compiled by for-profit credit bureaus. Typically, a credit report includes identifying information about you, such as your name, address, Social Security number and birth date. The report may also list any credit accounts or loans opened in your name, along with your payment history, account limits and any balances you owe.

Mpowered: Bellco has partnered with Mpowered, a local nonprofit, to offer affordable credit coaching for Bellco members. Get your report and score from all three bureaus along with expert analysis and coaching. Mpowered also offers a free online credit education tutorial, and various resource guides, blogs and videos on important credit topics.

Fix any errors or omissions

Some credit reports include errors such as accounts that don't belong to you or information that is out-of-date or misleading. You should read through your credit report and make note of anything that's incorrect.

Negative information that is accurate, such as late payments, delinquencies, liens, and judgments against you will drop off after seven years. Bankruptcies can stay on your report up to 10 years. Once you have your list of discrepancies , officially dispute those items with each bureau to investigate any errors listed on their reports.

Dispute items at Experian

Dispute items at TransUnion

Dispute items at Equifax

Update your credit profile

The more information you can provide about yourself, the more comfortable lenders may feel extending credit to you. In addition, certain information – such as having the same job or address for a few years – can make you appear to be more stable in lenders' eyes. While this information isn't used in creating your credit score, it's often used by lenders in addition to credit scores to make lending decisions.

Risks and rewards

There are many rewards for handling your credit well. You may be able to improve your lifestyle through purchases that are only possible with credit, utilize services that are only available if you have a credit card – renting a car, for example – and have the resources to pay for unexpected emergencies.

However, there are risks. Poorly managed credit can land you deeply in debt and recovery is not easy. The rules of credit are few and simple. A lender approves you for  a line of credit and extends that credit to you. You agree to pay the lender back the amount you spend plus finance charges and perhaps additional service fees. A payment schedule is set up and you are required to make payments according to that schedule. The most important advice is: pay your bills on time!

Types of credit available

Revolving credit: Most credit cards are a form of revolving credit. This simply means you are given a maximum credit limit and you can make charges against that limit. You may carry a balance and make payments each month.

Charge cards: While they often look like revolving credit cards and are used the same way, charge accounts differ in that you must pay the total balance each month.

Service credit: Often overlooked, your agreements with service providers are all credit arrangements. You receive goods (natural gas, electricity) or services (apartment rental, cellular phone use, health club memberships) with the agreement that you will pay for them each month just as you would with any other form of credit. Your contract may require payments for a specified number of months, even if you stop using the service. Your accounts with service providers and the associated payment history are appearing more commonly on credit reports. Unpaid bills are almost always reported when the account is turned over to a collection agency.

Installment credit: Car loans and mortgages are two examples of this type of credit. Installment credit is among the most common and easily understood. A creditor loans you a specific sum of money and you agree to repay the money plus interest in regular installments of a fixed amount over a set period of time. These loans are usually measured in months or years.

Tips for using credit

Choose your primary accounts. Using one or two credit accounts on a monthly basis can help build your credit report. Make sure those accounts are reported to a credit reporting agency. Most importantly, make your payments on time.

Shop around for credit. Lower interest rates, lower service charges and additional benefits such as frequent flyer miles or special insurance rates are available.

Know your responsibilities. Once you have signed a credit agreement, you are responsible for it unless the creditor agrees to release you from the agreement. That not only includes credit cards or installment loans, but also health club agreements and cellular telephone contracts, even if you stop using the service. Remember also that a divorce decree does not release you from responsibility for joint accounts opened during a marriage.