Americans are getting better with credit --- for the first time in history, the average national FICO score is 704.
Having a high credit score (either 700 or above) is your ticket to reaching your life goals and securing a stable future. That includes things like buying a house, upgrading your car, or passing a credit check to qualify for a better job.
Got bad credit? That’s okay --- you can work to repair it by committing to these tried and true credit-building steps.
1. Start by building credit
When you’re an adult, having no credit is just as bad as having bad credit, because lenders have no idea what kind of spender or borrower you are, and they’ll refuse to loan you money. So, the first step to having a good credit score is to establish some credit.
Even if you’re averse to having a credit card, it’s good to have one active account in order to build your credit history.
2. Learn your credit score
To get your credit score, you can pay credit reporting agencies like Equifax, TransUnion or Experian for their score — but there are also ways to get a credit score for free.
For example, you can head to Credit Soup to get access to a free credit score.
3. Get a free credit report
Review your full credit history using Credit Karma, a debt management service that offers credit reports, credit trackers and advanced reporting on your credit history. They offer a monitoring service to help you minimize the risk of fraud and errors on your account.
And they do it all for free.
It's important to note that a credit report does not include your credit score.
4. Dispute any mistakes on your credit report
Your credit report might have errors or inconsistencies in it that are lowering your score. Check your credit report carefully to make sure you’re not being penalized for unnecessary mistakes.
If you find an error, ask for a dispute form from the agency within 30 days of getting your report. It’ll take about a month for the mistakes to fall off your record, but after that, you’ll be thrilled to see your credit score go up.
5. Apply for a secured credit card
A secured credit card is a great way to start building a solid foundation of credit — consider it “training wheels” for your credit score.
Here’s how it works: Your bank sets a limit on the card -- let’s say $500. You give the bank $500 up front as a deposit, should you ever default on your payments. The card then functions as a regular credit card.
After making regular payments on the card for a few months to a year, you will have enough credit to apply for a regular credit card with better benefits and a higher spending limit.
6. Become an authorized user on someone else’s account
Ask a family member or significant other to add you as an authorized user on one of their cards. This one requires a fair bit of trust, since the primary cardholder is responsible to cover your bill if you fail to pay it.
Don’t sour a good relationship — make a serious commitment to pay your end of the bill every month.
Important: Check with the card issuer to make sure your authorized credit use is reported to the major credit bureaus. Otherwise, all your hard work to build good credit won't even get recorded.
7. Pay off your cards in full each month
It should go without saying, but pay your bills on time. Failing to do so will destroy the credit that you’re working to build.
Don’t let debt linger and accumulate — pay off your cards in full at the end of each month (yes, in full, not just the minimums!)
8. Keep your credit utilization low
Your credit utilization is the percentage of your available credit that you're using. For example, if you have one credit card with a $1,000 limit and you're carrying a $500 balance, then you're at 50% credit utilization.
Try to keep your credit usage at 30% or less, and avoid maxing out your cards unless you’re absolutely certain you can pay the balance in full and on time.
9. Avoid opening too many new accounts
Your favorite department store is offering a shiny new credit card and you’re feeling the temptation to sign up? Resist! Pretend there are snakes in the store and leave.
Part of your credit score depends on the "age" of your accounts, so having too many new accounts lowers the age of your credit history. Having a longer or "older" history gives you more clout with lenders and raises your credit score.
10. Keep your accounts open as long as possible
Remember, the age of your accounts and the longer you’ve been in good standing on your credit report will reflect positively in the eyes of creditors. Closing an account that’s been in good standing could potentially wipe away years of good credit, putting you back at square one.
Avoid closing any open accounts and instead leave your card at home if you can’t resist the urge to spend.