How do I start building my credit?

How do you establish your credit history? Even if you've never made a major purchase, there are several ways to start building a good credit history:

1. Open a checking account and savings account. These do not create your credit file, but their existence will indicate that you have money and show how you manage it.
2. Apply for a department store credit card or a major credit card (such as a MasterCard®, Visa®, or Discover®) and use it responsibly. Pay your credit card bills on time.
3. If you don't qualify for credit on the basis of your own credit file, ask someone with an established credit history (like a parent) to co-sign your application. Remember, the co-signer promises to pay your debts if you don't.

* See our Unsecured credit card section for offers to help establish your credit.

Qualifying for a 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 demonstrate that you are a good customer. The proof is in your credit history, which lists the amount of credit you have received and how faithfully you've paid it back. If you’ve financed a car loan or other purchase, you probably have a record at a credit reporting 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.

Before you submit a credit application, get a copy of your credit history to make sure it's correct. Contact a credit bureau listed in the Yellow Pages under "credit rating and reporting." To order a copy of your credit report, contact Equifax, Experian,and TransUnion.

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Choosing a credit card

Today's consumers are presented with a wide array of credit card choices—cards with low annual percentage rates, cards with no annual fees, rebate cards, gold cards, platinum cards, etc. So, how do you choose one?

Before selecting a card, be sure you know which credit terms and conditions apply to the account. Do you expect to pay your bills in full each month, or do you plan to pay off your purchases over time?

Consider the annual fee, finance charges, balance computation method, and whether or not there is a grace period for purchases. See our Credit Card Tips section for more information on how to choose a credit card and other important credit card terms.

Your Responsibilities

Because credit cards make it easy to purchase things now and pay later, it's easy to lose track of how much you've spent. Make sure you pay all of your bills on time and only get the credit cards you need—don't get a card just because the issuer is giving away a cool gift.

To establish and maintain good credit, it is important to pay at least the minimum amount due every month and to pay on time. Allow five to seven business days for payments made by mail. Use your credit card wisely as a beneficial financial tool. Do not fall into the trap of charging every single little thing you come across just because you can. This will leave you with a huge debt you can't afford.

There are easy ways to keep your spending on track. Perhaps the easiest is to record your credit card purchases in a notebook. There are also a wide variety of software programs, such as Quicken®, available to help you manage your finances.

Lastly, take advantage of services your financial institution offers. Through online banking, for instance, you can see your account activity on a daily basis and even arrange to make electronic payments.