How to establish good credit

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A new car… A great interest rate on your credit card… Financial swagger… A good credit score goes a really long way. If your score is low, that doesn’t necessarily mean it will take a long time to get it to (or back to) a good level. Whether you’re just starting out and trying to build your credit or simply looking to improve it, here are some tips to consider.

Understand how your financial habits impact your score

The first step to boosting your score is to understand what causes your credit score to rise and fall. Late payments on loans or credit cards, multiple recent credit applications or closing established accounts can all cause your credit score to drop. Once you’ve identified your own causes, you can take actions to start improving your credit.

Use a secured credit card

One simple way to establish or rebuild credit is with a secured credit card. A secured credit card is a type of credit card that is backed by a cash deposit when you open the account. As you use the card, your bank reports to the credit bureaus, allowing you to build or rebuild a positive credit history if you use your card responsibly.

“With a secured card, you are putting your money into the bank,” says Dara Duguay, executive director of the Credit Builders Alliance in Washington, D.C. That cash deposit is generally equal to your credit limit. Say you put $200 in the account—this means your credit limit would be $200.

In time, Duguay says, “You could ask to see if you qualify and move on to a traditional credit card.” And after you close your secured card, you’ll get back your deposit.

Make bill payments a breeze

Your payment history accounts for one-third of your credit score, so it’s especially important to stay on top of your bills when you’re working to build or rebuild your credit. When you miss a payment, like a medical bill or car payment, the creditor usually reports it to at least one of the three United States credit bureaus: Experian, Equifax or TransUnion.

Fortunately, you can take simple steps to avoid late or missed bill payments by setting up automatic payments wherever possible. Check with your bank for automated payment options, as well as utility companies and other businesses where you make regular payments. You can also use your bank’s payment tools to receive alerts when a payment is due or confirmation that your payment has been completed.

If you use your secured card appropriately, pay your bills on time and check your credit report regularly to review your progress, you’re likely to build your financial confidence—and your credit.

Learning to build your credit is a step forward on the path to financial confidence. For additional tips on managing your finances sign up for the onUpdates newsletter, delivered twice per month.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.