How Can I Establish--or Rebuild--Good Credit?

If you do not have a well-established credit history, you should begin to build one.

The trick is to start small: try applying for credit with a local business, such as a department store or a local bank or credit union. These local merchants may have lower credit standards than larger lenders. Before you apply for credit, make sure the credit grantor reports credit history information to one of the major U.S. credit bureaus so you can build your history.

Other options if you are having difficulty opening a credit account include asking a friend or family member to cosign your loan or credit card application or obtaining a secured card, which is guaranteed by a deposit you make with the card issuer.

Actively Monitor and Manage Your Credit
While the most obvious thing you can do to build a solid credit history is to pay your bills on time, you can also take steps to protect your credit standing and make sure your credit report is accurate when you apply for credit.

Many credit reports contain inaccuracies, usually caused by innocent errors but occasionally by fraud (such as identity fraud, in which a thief uses someone else's name to open credit accounts). The Fair Credit Reporting Act ensures your right to dispute such inaccuracies in your credit report without charge. To effectively use this right, you need to check your credit report on a regular basis.

You can also plan a credit strategy much like you would a budget to improve your credit worthiness. Taking steps like applying for a major credit card if you only have local credit, closing old unused credit accounts, and keeping tabs on the number of inquiries in your report can improve your credit status. See our tips on Handling Your Credit to Prepare for the Future for details.

You can also plan a credit strategy much like you would a budget to improve your credit worthiness. Taking steps like applying for a major credit card if you only have local credit, closing old unused credit accounts, and keeping tabs on the number of inquiries in your report can improve your credit status.
Skip the "Credit Repair" Clinics
Although some consumers pay credit clinics hundreds or even thousands of dollars to "fix" their credit reports, only time can improve bad credit. The Federal Trade Commission has investigated and reported at length on these often-fraudulent "clinics." And some credit repair plans actually encourage you to commit fraud yourself by attempting to create a second credit identity.

The key fact: There is nothing a credit repair clinic can legally do to fix a credit report that you can't do yourself for free.

Consumer credit reports contain easy-to-follow instructions for disputing inaccurate information at no charge. Inaccurate information will be changed or deleted. Accurate information that shows negative payment habits will usually remain on a credit report for seven years, with bankruptcies remaining up to 10 years. Federal law mandates this.