How To Build Credit History

Learning how to build credit history—whether you're a young adult just starting out or someone recovering from a bankruptcy—will help get your finances moving in a positive direction.

It may seem that the system is set up in a way that makes it difficult to recover from a poor credit history or build a good history from scratch, but there are proven steps you can take that should have a positive effect on your overall credit rating and score.

Rebuild Your Credit Now

There is no easy solution to a bad credit record—learning how to build credit history requires diligence, patience, and most importantly perseverance.

Check for Errors

One of the simplest ways to get started on the path to better credit is to make sure you are not currently being punished for errors on your credit report. In order to check for mistakes or other errors, you'll first need to request your free yearly credit reports from the three major agencies, TransUnion, Equifax, and Experian.

Once you receive your reports, cross check them carefully to see if all the information matches up with reality. The three major bureaus don't tend to share information except in circumstances where they may be required to by law, so there may be some major differences between your credit reports. Note any inconsistencies.

If you can prove that an item on one credit report is inaccurate, the other two bureaus will be legally obligated to remove it as well.

Be on the look out for the following things:

• Closed or paid accounts that are still reported as outstanding.
• Fraudulent accounts or debts taken out in your name that you have no knowledge of and/or did not open.
• Any other inaccuracies, such as erroneous reports of missed payments—that were actually paid on time.

Errors on your credit report may be adversely affecting your credit score. If you find any inaccurate information and you have documents to prove it, it is illegal for the credit agency to keep the information on your credit report. Write a letter to the agency in question outlining the specific inaccuracies and provide copies of related documents. Make sure you hold onto the originals and send only copies.

Avoid New Debts

Another good tip for rebuilding your credit is to avoid opening new credit accounts except when needed. It is especially important to try and avoid opening multiple accounts in succession. New accounts generally have a negative effect on your credit score. Remember that the longer you have been using credit, the longer your credit history, and as more time passes, any mistakes you have made become less important and have less impact on your overall credit picture.

Keep All Existing Accounts Paid

The most obvious way you can make build a better credit history is to make sure you start dealing with all your current debts and credit card accounts responsibly. You may need to go through a period where you curb your spending considerably in order to get back on top of your finances. Whenever you make a purchase, ask yourself—is this really necessary?

The less you spend, the easier it will be to keep up to date with your credit card and other loan payments. Making regular payments, on-time, over an extended period is one of the best ways to build a strong credit history. On the flipside, making late payments or worse yet, missing a payment is a great way to cause injury to your credit history.

Make learning how to build credit history and improving your credit score part of your overall personal finance management plan.