5 Steps to Build Your Credit

By Michael Brough

Whether you’re new to credit or need to build credit, here are steps to help put you on a firm foundation:

1. First, look for opportunities to establish credit. Secured credit cards are a good step, since you put down a deposit, which then equals your credit limit. Retail store credit cards may offer easier approval than bank cards but tend to have higher interest rates, so watch out for them.

Also, a family member with good credit could add you as an authorized user on a credit card. As long as your bank reports authorized users, then that could help improve your credit. However, any negative use by the primary card holder could negatively impact an authorized user. Federal student loans can build credit for new users, too, since they don’t usually check your credit when awarded but do report repayment to credit bureaus.

2. Understand the factors in your credit score. Your history of making payments on time is the most important ingredient, so avoid late payments. Other things that affect your credit score include:

  • Amounts owed: Keep this in check and in scale with the amount of available credit.
  • Mix of credit, including credit cards, as well as home, auto or other loans
  • Length of credit history
  • Amount of new credit: A flood of requests in your name raises a red flag for lenders and can negatively affect your credit score.

3. Make a spending plan and follow it. Budgeting your money helps you prevent using more credit than you can afford to repay.

4. Review a copy of your credit report at least once a year. Many services, including USAA’s CreditCheck® by Experian®, offer this for free and provide your credit score, too. Fix discrepancies quickly by filing a dispute with the credit agency or, in the case of fraud, lodging a complaint with the Federal Trade Commission.

5. Avoid common mistakes such as:

  • Paying late. It will hurt your credit score and likely earn you a late fee.
  • Only paying the minimum. You’ll be buried under mounting interest.
  • Maxing out your card. Using all of your available credit lowers your credit score.
  • Co-signing a loan for someone. You’re liable if they don’t pay.
  • Opening lots of credit lines at once. A flood of applications is a red flag for creditors.
  • Closing credit accounts. It could negatively impact your credit score, especially if you do not pay off balances in full each month, as this will lower the amount of available credit you have versus what you owe.
Learn more about a USAA credit card that’s right for you.

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