According to Experian, a credit score is a number that helps lenders decide: "How likely is it that I will get paid back on time if I give this person a loan or credit card?" Your credit score is based on the information in your credit report.
Get your free credit report from each of the three major credit reporting agencies (CRAs)—Experian, Equifax, and TransUnion—before you apply for a line of credit. Federal law says that you can get one every year. You can call 1-877-322-8228 or order online at www.annualcreditreport.com. Make sure that your report doesn't have someone else's information in it. If so, call the CRA right away and ask them to get rid of it.
Then, use these tips to help you build your credit and credit score:
- Set up checking and savings accounts and be responsible with them.
- Use your credit cards often, but be smart about it. Pay all of your bills on time, because that and how much of your available credit you actually use make up the two most important parts of your credit score.
- Get someone to co-sign a loan for you, like a car loan or another secured loan, and pay it back on time.
- Apply for and pay back student loans on time.
- Apply for a secured or credit card. But make sure that the issuer tells all three CRAs about the loan. If you don't pay on time, the card won't help you build credit.
- Use someone else's good credit by becoming a "authorised" (joint) user on their credit card.
- Add a gas card and a store card to your credit mix by applying for one of each.
Getting and keeping good credit will make it much easier for you to buy a home. You could get a good loan with a fixed rate instead of having to settle for a subprime loan with a variable rate. It will also help if you need a home equity line of credit to make home improvements or a home equity loan to pay off debts, such as student loans, or to consolidate other debts.
