Making Borrowing Decisions

Tips for Building Good Credit

• Get your free credit report each year.

  • You can get a free credit report from each of the three major credit bureaus once per year at AnnualCreditReport.com. This is a valuable tool for checking your credit report for errors and to see how your credit score is calculated.
    
    

• Use credit cards responsibly.

  • Credit cards can help establish your credit score, which will be important later on. However, using credit cards responsibly and paying your bills on time is important.
    
    

• Avoid the credit card minimum payment trap.

  • The minimum payment on your credit card bill is the smallest amount you can pay without incurring late fees or other penalties. However, even if you pay the minimum, you will still be charged interest on your outstanding balance. The best way to avoid paying interest on your credit card purchases is to pay your bill in full each month.
    
    

• Payment history is the most important factor to your credit score.

  • Your payment history makes up a large part of your credit score. This means that it is essential to pay your bills on time, every time.
    
    

• Borrow when it makes you better off.

  • There are times when borrowing money can make sense, such as when you are buying a house or a car. However, it is important only to borrow money when you can afford the payments and when the borrowing will actually improve your financial situation.
    
    

• Keep your debt-to-income ratio below 36 percent.

  • Your debt-to-income ratio is the percentage of your monthly income that goes towards debt payments. A high debt-to-income ratio can make qualifying for loans difficult and damage your credit score.

Following these tips can improve your credit score and build a solid financial foundation.