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Basic Step #6
Build a Strong Credit Report

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Find Out What Others Know About You

Your credit report is a record of how you've paid your debts in the past. It shows the current amount of debt you have, and how much debt you've repaid. Maintaining a strong credit report can help you in a number of ways. You can get more favorable terms on loans and mortgages, it will be easier for you to receive credit, and you might even get a better rate on your auto insurance.

It's a good idea to check your credit report once a year to make sure it’s free of errors. Everyone is entitled to one free credit report from each of the three main reporting agencies (Equifax, Experian, TransUnion) every 12 months. To order your credit report go to www.annualcreditreport.com.

Always pay your bills on time and be careful not to overdraft your checking account to ensure that you maintain a good credit report. Usually you need at least one credit card to build a strong credit history. However, it’s how you use that card that affects your credit record. Keep these tips in mind to use your credit cards wisely:

  • Use only one or two cards.
  • If you're just beginning to use credit, consider a secured card to impose some self-restraint. A secured credit card requires you to put money in your account in advance. Then, you only can spend the amount of money already in your account.
  • Keep track of what you charge, just as you would with a checking account. This way, you won't be shocked when the statement arrives.
  • Save for big-ticket items rather than charging them on a card. If you must borrow for that item, consider less expensive loans from banks and credit unions (just be sure to compare the terms to find the better deal first).
  • Pay credit card bills as soon as they arrive to avoid late-payment fees. If possible, pay off the entire balance each month and always aim to pay more than the minimum balance due.
  • If your credit card balance begins to increase, quit using the card for a while.
  • If you still use the card and the balance continues to mount, call the credit card company and request to have the credit limit lowered.
  • Use a low-interest card, preferably with no annual fee. Shop around on the internet or look at offers sent to you in the mail. Don't to forget to check with your bank or credit union, as rates vary widely. (Retail cards issued by department stores tend to charge the highest interest rates.)
  • Be wary of cards that offer extremely low interest rates "for a limited time." Frequently, when the promotional period expires, the credit card issuer applies a new interest rate that may be well above average.

Take SAM’s free Credit and Debt Basics course to learn more about strengthening your credit profile.