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After some financial ups and downs over the past few years, you’re ready to start building your credit history and credit score.
For some consumers, the first step can be overwhelming, as one in six consumers do not have any mainstream credit, e.g. credit card, mortgage or car loanbased on 2023 opinion poll From the Federal Deposit Insurance Corporation.
Although there is a lot about what you can do to build or Repair your creditAli Zane, CEO of Imax Credit Repair and Identity Theft, says you should always start with the same first step: Get a copy of your credit report and study it carefully to look for errors that could lower your score.
“An example of the first step in the credit-building process is to obtain a credit report from all three bureaus (Equifax, Experian, and TransUnion) and conduct an exhaustive line-by-line analysis of errors, fraudulent accounts, and reporting accuracy,” Zane tells us. independent Via email.
If you discover an error, you can dispute it through the credit bureau, who will work with you to verify the error and make corrections to your report if necessary.
In addition to checking your credit report for errors, a line-by-line review can give you a complete picture of your credit standing, as it will show you the number of accounts you have opened and closed, your payment history for each account, your loan and credit card balances, and other important information.
You can request your credit report from three “bureaus,” or companies that compile your credit report information and provide a credit score based on your report: Equifax, Experian, and TransUnion.
Plus, you can receive all three credit reports instantly for free annualcreditreport.com. Other sites, such as Credit Karma, provide free access to Equifax and TransUnion credit reports and scores.
The credit score that often appears on your credit report is also important, as your credit score often plays a role in your approval and final interest rate on products like credit cards and loans.
“Many of your financial partners have invested heavily in creating credit score displays that not only show you your score but also explain (sometimes even simulate how to improve) your credit score,” says Jennifer White, senior director of banking and payments intelligence at consumer research firm J.D. Power. “There are other sources, such as credit bureaus, but start with a reputable and trustworthy source — for most people, that means your bank or credit card company.”
Consumer Financial Protection Bureau, the agency responsible for implementing and enforcing federal laws designed to protect consumers.
“It is important to review your credit reports from the three national consumer reporting companies (Equifax, TransUnion and Experian) every twelve months to ensure they are accurate and complete,” the bureau said. “This is especially important if you plan to use credit to purchase a home or car, or plan to apply for credit in the future.”
You checked your credit report; now what?
If you’ve taken the recommended first step to improve your credit but need step two, there’s one credit practice that can help you establish a solid credit score baseline: make your payments on time.
Paying your credit cards, loans, and other lending products on time is the single most important aspect of your credit score: It accounts for 35% of all factors calculated in your score, According to Fitzgeralda company that generates credit scores. In fact, your payment history is “the strongest predictor of the likelihood that you’ll repay all of your debt as agreed,” FICO says.
So, White tells us, do whatever you can to make sure your payment is never late. independent in an email.
“Set calendar reminders when payments are due, or set up automatic payments to pay at least the minimum balance due,” White says. “You can always pay more if you can, but don’t miss the minimum payment.”
There’s no set number of payments that will magically improve your score; instead, it’s about consistency, White says. “Paying your bills on time is the most powerful thing you can do,” she said.
If you don’t have a credit card or loan to establish a solid payment history, consider asking your landlord if they can report your rent payments to the credit bureaus, said Jeremy Schachter, branch manager at mortgage lender Fairway Independent Mortgage.
“If you rent, you can also ask your landlord to provide you with your payment history,” Schachter told independent in an email. “Typically I see this with larger rental properties, not mom-and-pop owners.”
Schachter recommends your utility and cell phone companies do the same.