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Building Credit 101

Good credit is an important aspect of many of life’s major decisions; it is required to obtain loans, keep low interest rates on your credit cards and purchase a home or a car. It can also help you save money on insurance, utilities and even cell phone services. But establishing and maintaining a good line of credit is not always easy and it is important to understand what it takes to build strong credit.

As you begin to build credit, consider these useful tips:

  • Build a Credit History. Obtaining and using a credit card is one of the best ways to begin building your credit history. Using your credit card for purchases like rent or groceries can help begin to establish you as a good risk to credit bureaus. Not ready for a credit card? Try applying for a card from a credit union or getting a credit builder loan. These are lower-risk options that can help build credit with lower interest rates. Gas or department store cards can also be a good place to start if your options are limited as these cards are typically easier to obtain.
  • Use Credit Responsibly. While credit cards can help build credit history, they can also be easy to misuse. Applying for too many credit cards, exceeding your credit limit and falling behind on payments can all negatively affect your credit score. In addition, closing old cards you no longer use can impact your credit history. Keeping your credit cards open will help build your credit history.
  • Manage Your Debt. Loans, especially student loans, are a form of debt and are taken into account as part of your credit score. Managing these obligations will help keep you in the good graces of your lender and improve your credit score.
  • Pay Your Bills On Time. Paying your bills on time signals to creditors that you’re responsible and establishes you as a good credit risk. Keep your bills organized, be aware of payment due dates and maintain regular payment schedules to ensure your newly established line of credit maintains a good credit score.
  • Watch Your Credit Report. Keeping an eye on your credit score is important. Identity theft, credit card fraud and other scams can all lead to inaccurate information on your credit report; periodically checking your score will help detect these mistakes and keep your score high. You can get a free report once every 12 months from each of the three nationwide consumer credit reporting companies (to help consumers during the pandemic, you can request a free weekly online credit report through April 2021). Request it at

As always, a CERTIFIED FINANCIAL PLANNER™ professional can help you develop a plan to build or establish good credit that fits your needs. He or she will be able to help you consider different options for establishing credit and any associated risks.

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